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Japan Q3 GDP growth seen slowing sharply as consumption, external demand drag: Reuters poll
Japan’s economy is expected to have grown only slightly in the third quarter, as a rebound in business investment was offset by weaker household spending and external demand. The slowdown matters because growth is one factor the Bank of Japan will consider when deciding whether to raise interest rates again; many analysts expect a move as soon as next month.
A Reuters poll of 16 economists forecast annualised GDP growth of 0.3 per cent for July to September, down from 1.4 per cent in the previous quarter, or 0.1 per cent without annualisation. Capital spending was forecast to rise 1.5 per cent, while private consumption, which makes up more than half of GDP, was expected to fall 0.2 per cent for its first contraction in seven quarters. Net external demand was expected to subtract 0.4 percentage points from growth, after adding 0.5 points in the previous quarter; preliminary figures are due on 16 November.
In short
- Japan’s growth is forecast to slow to an annualised 0.3 per cent.
- Household spending and external demand are expected to weigh on GDP.
- The Bank of Japan will consider growth when setting interest rates.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
A case for raising rates is that business investment is rebounding and the economy is still forecast to grow, while keeping rates too low could sustain inflationary pressure. If the Bank of Japan expects the weakness in consumption and external demand to be temporary, a gradual increase could support normal monetary policy without waiting for growth to accelerate further.
The case against
A case for holding rates is that growth is expected to slow sharply, household spending is forecast to contract for the first time in seven quarters, and external demand is set to weigh on output. Raising borrowing costs amid weak domestic demand could further restrain consumption and investment, so the Bank may prefer to wait for clearer evidence that the recovery can withstand tighter policy.
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