Wealth Manager - the site for professional investment managers

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.

Japanese economic growth collapses in Q2 as sales tax bites

Japanese economic growth collapses in Q2 as sales tax bites

Japan's economy in the second quarter shrank by the highest amount since the earthquake and tsunami of March 2011 as the recently introduced sales tax hammered household spending.

The country's GDP contracted by 6.8% in Q2 -a marked contrast to the 6.1% rise seen in Q1 - which has been attributed to the sales rush before the tax came in and subsequent lull when it became law in April. Quarter-on-quarter, it represented a 1.7% fall.

Although the numbers sound severe, economists had predicted Japanese GDP would contract by 7.1% with the impact of the sales tax widely flagged.

The key decision for the Japanese government now will be whether or not to press ahead with the planned second rise in consumption tax in October.

'The collapse in economic activity last quarter was largely a result of the higher sales tax and we still believe that the recovery will resume in the second half of the year,' said Capital Economics' Marcel Thiellant.

While he described the fall in non-residential housing investment, which unlike residential housing is not subject to the new consumption tax, as 'ominous', Thiellant said the bright spot in the Japanese data release was the fact that 'net trade added to growth for the first time since the launch of Abenomics'. However, the caveat to this apparent bright spot is that this was largely down to imports flagging due to reduced consumption, which is unlikely to win over the Japan bears.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Navigating geopolitical risk with ETFs

Navigating geopolitical risk with ETFs

ETFGI’s Deborah Fuhr on how investors can use exchange-traded funds to position their portfolio.

Play Sarasin’s Boucher: why I like salmon with chocolate

Sarasin’s Boucher: why I like salmon with chocolate

Henry Boucher, manager of the £129 million Sarasin Food & Agriculture Opportunities fund, explains why he is gobbling up salmon and chocolate stocks.

Play Alibaba hype, the UK slowdown and opportunities in European sovereign bonds

Alibaba hype, the UK slowdown and opportunities in European sovereign bonds

Libby Ashby and leading wealth managers analyse what the Alibaba IPO hype means for Chinese equities, slowing growth of the UK economy and whether there’s anything left to play for in the European sovereign bond market.

Wealth Manager on Twitter