TOKYO (Reuters) – Japan’s economy is expected to have recovered from a contraction in the first quarter as household spending improved, but trade tensions between Washington and Tokyo loom as a major risk to the country’s exports and investment outlook.
The economy is forecast to have grown 1.4 percent on an annualized basis in April-June. That would follow a 0.6 percent annualized contraction in the previous quarter, which put an end to the best run of growth since the 1980s bubble economy.
Japan’s economy is expected to continue growing due to consumer spending, but there is growing unease about the pace of future growth, economists say.
U.S. President Donald Trump’s administration may ask Japan to take specific steps to lower its trade surplus with the United States as Trump threatens China with higher tariffs, which could spark a global trade war.
“Consumer spending and capital expenditure should bounce back in the second quarter, but I am still worried,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.
“Protectionism and a slowdown in exports are big uncertainties that could weaken Japanese business investment. The signs point to a slower pace of overall growth.”
Compared to the previous quarter, gross domestic product (GDP) is forecast to have risen 0.3 percent in April-June after a 0.2 percent contraction in January-March, according to a Reuters poll of 16 economists.
Private consumption, which accounts for about 60 percent of GDP, likely rose 0.2 percent for the quarter, rebounding from a 0.1 percent fall in the first quarter.
Capital spending was seen rising 0.6 percent in the quarter, the poll found, up for a seventh straight quarter and accelerating from 0.3 percent growth in the first quarter.
External demand – or exports minus imports – was expected to add 0.1 percentage point to growth, the poll found, the same rate of contribution seen in the first quarter.
The United States has pressured Japan for a bi-lateral free-trade agreement as a way to lower the U.S. trade deficit.
Japan has repeatedly said it prefers multilateral trade negotiations, which put it at loggerheads with the United States.
Trump is trying to re-negotiate the U.S. trade relationship with other countries to curb practices which he says are unfair to U.S. companies and workers.
This has lead to an increase in tension between the United States and China as the world’s two largest economies exchange retaliatory tariffs.
Japan’s core machinery orders, a leading indicator of capital expenditure, tumbled in June at the fastest pace in six months, data showed on Thursday, adding to fears about the strength of business investment.
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