A Dismal Japanese GDP Report, Coronavirus Concerns, and Holidays in the U.S. and Canada

February 17, 2020

The Japanese economy again contracted sharply after a hike in the national sales tax. This is a phenomenon with lots of history. A 3% sales tax was introduced initially in April 1989. Back then, Japan was viewed like China is currently — an up-and-coming economic rival that could soon overtake the United States. The sales tax hike of 1989 reinforced inflationary forces. The Bank of Japan over-reacted to that development, the stock market peaked on the final business day of 1989 at 38,916, 65% above its present level, and economic growth in Japan has been coping with stagflation ever since. After hiking the sales tax in April 1997 to 5% from 3%, real GDP declined 2.7% at an annualized quarter-on-quarter rate (SAAR) in 2Q97, led by a 9.5% plunge (SAAR) in personal consumption, and after the tax was raised to 8% on April 1, 2014, GDP and consumption dropped 7.4% SAAR and 18.0% SAAR.

After twice postponing another tax hike to 10%, that move happened last October 1st. Initially, Japanese officials claimed initially that the impact on growth appeared comparatively muted, but today’s first formal estimate of Japanese growth last year revealed a 6.3% annualized drop in real GDP compared to the third-quarter level. Among components of demand, personal consumption, residential investment, non-residential business spending, and imports respectively plunged 11.0%, 10.4%, 14.1%, and 10.1% SAAR. Real GDP had only expanded 0.5% SAAR in the third quarter and recorded an average gain in 2019 of 0.7% after 0.3% in 2018. Compared to 4Q18, real GDP was in the red by 0.4%, and the economy contracted 0.7% over the two years between the final quarters of 2017 and 2019.

Confirmed cases of the coronavirus worldwide now surpass 71,000 and led so far to almost 1800 deaths.

It’s been a quiet day in the marketplace, nonetheless, in the absence of leadership from North American markets. The United States is observing Presidents Day, and Canadians are celebrating Family Day.

The dollar is unchanged against the euro, Aussie dollar and Swiss franc and has risen just 0.1% relative to the yen, same as the advance against the kiwi. The dollar’s biggest moves higher are 0.2% relative to the peso and sterling, and there have been dips of 0.2% against the loonie and and 0.1% relative to the yuan.

Stock markets in the Pacific Rim fell 0.7% in Japan, 0.5% in India, and 0.4% in Taiwan but rose 2.3% in China and 0.5% in both Hong Kong and New Zealand. Equities in Europe have risen 0.6% in Italy and 0.3% in the U.K., Spain, and Switzerland.

Ten-year British gilt and German bund yields are steady, while their Japanese counterpart has slipped a basis point. Commodity prices are generally flat.

December’s rise in Japanese industrial production got revised downward by 0.1 percentage point to 1.2%. Output fell from a year earlier by 3.1% in December, 6.3% in the fourth quarter and 2.9% in 2019 as a whole. Capacity and capacity usage in 2019 declined by 0.3% and 3.2%.

Real GDP in Thailand increased by an as-expected 0.2% last quarter, same as in the third quarter, This depressed on-year growth in that economy to 1.6% from 2.6% in 3Q and 3.8% in the final quarter of 2018.

Calendar year growth in Indonesia slowed from 3.4% in 2018 to 0.7% in 2019.

Chinese house prices recorded a 6.3% increase between January 2019 and last month. The average increases were 6.6% in 2019 as a whole but 10.3% in the first half of last year.

Chinese foreign direct investment slowed to an on-year increase of 4.0% in January from 5.8% in December and 6.0% in November.

Indonesia experienced a $0.87 billion trade deficit last month versus a shortfall of $1.06 billion a year earlier. Exports and imports both recorded on-year declines of more than 3.0%.

Norway posted its second largest monthly trade surplus in a year during January, NOK 21.2 billion in size.

The British Rightmove house price index rose 0.8% in February and 2.9% compared to a year earlier.

New Zealand’s service sector purchasing managers index leaped 5 index points to a 22-month high in January.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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