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Manufacturing and trade dampen Japan's economic growth in Q1

Christian Fernsby ▼ | May 21, 2019
Japan's economy expanded more than expected in the opening quarter of 2019, but growth looks set to weaken in the second quarter.
Japan services sector
Asia   Official data showed GDP falling sharply in the third quarter of 2018
A 0.5% rise in GDP in the first quarter comes after mixed data late last year.

Official data showed GDP falling sharply in the third quarter of 2018 but regained most of the lost ground in the fourth quarter.

However, despite the fourth quarter improvement, by the end of last year the annual rate of GDP growth was still a lacklustre 0.2%.

The sluggish expansion raised concerns that the economy was heading into 2019 on a soft footing ahead of a planned sales tax rise later in the year.

The better than anticipated start to 2019 therefore goes some way to ease these concerns, but demand and underlying economic conditions still seem worrying weak.

While the 0.5% real GDP rise during the first quarter of the year surpassed market expectations, the year-on-year growth rate was just 0.8%, and broadly in line with the Nikkei PMI survey signal (compiled by IHS Markit).

Worryingly, the survey data indicate that underlying weakness likely extended into the second quarter.

The composite PMI, which tracks output at both manufacturing and service sector companies, registered 50.8 in April, up from an average of 50.6 in the first quarter but considerably below the average of 52.1 seen over the course of 2018.

Like the official data, the PMI survey highlights the drag on the economy from manufacturing and trade.

Alongside the latest GDP statistics, final industrial output data for March was released, revealing a 4.3% reduction compared to last year, the steepest in almost four years, corroborating the signal seen in the PMI survey from March.