• Japan’s economy shrank sharply

• Singapore cuts growth outlook

• Thailand economic growth slips to 5-year low

Japan’s economy shrank sharply

After hits from storms and a tax increase, the world’s third largest economy could face recession as the outbreak takes a toll on tourism.

Japan’s 4Q19 GDP contracted more than expected by 1.6% qoq (-6.3% annualized rate), the most significant decline in 6 years since 2Q14, due to sharper-than-expected declines in consumer (-2.9% qoq) and business spending (-3.7%) while the 3Q19 expansion was revised lower to 0.5% annualized from 1.8% previously. This brought full year growth to just 0.7% in 2019 while 2018’s growth was revised lower by 0.5ppt to just 0.3% from 0.8% previously. Nominal GDP contracted 1.2% (quarter-on-quarter, non-annualized), after a 0.5% rise in 3Q. This was the biggest decline since Prime Minister Shinzo Abe took office at the end of 2012 - a setback for his effort to reflate the economy.

The disappointing data snapped four quarters of expansion and was the biggest contraction since 2Q14 when the economy shrank 1.9% after the first sales tax hike in 17 years was introduced. The tax hike appeared to have taken its toll in 4Q19, as personal consumption fell 2.9% after the government raised the sales tax in October from 8.0% to 10.0%. Business expenditure on factories and equipment decreased 3.7% after a 0.5% rise in 3Q despite investment getting a boost from cashless-payment systems that allow consumers to alleviate the consumption tax hike. Providing a positive offset, government investment rose 1.1% in 4Q after a 1.2% increase in 3Q. Government spending increased 0.2%, slowing from a 0.7% rise in 3Q. The combined effect of the public sector added 0.1 ppt to non-annualized, quarter-on-quarter growth. Net exports were also a source of support, adding 0.5 ppt to non-annualized, quarter-on-quarter GDP growth. Private inventories added 0.1 ppt to growth (nonannualized).

Source: BIMB Securities Research - 18 Feb 2020