Japan's real gross domestic product (GDP) maintained positive growth in the July-September period for four consecutive quarters, according to the government's preliminary data, due to the last-minute surge in demand before the October consumption tax rate hike.
However, the growth rate declined due to slumping external demand caused mainly by the U.S.-China trade conflict. There is growing concern over economic conditions in the fourth quarter and beyond, when a slump resulting from the last-minute spike in private consumption is likely to take place.
'Weak fundamentals'
In September, before October's tax hike, there was a certain level of last-minute demand mainly for expensive products at electronics stores and department stores, which boosted private consumption by 0.4 percent from the previous quarter. Private consumption accounts for more than half of GDP.
According to a survey by the Internal Affairs and Communications Ministry, spending on refrigerators and microwaves increased more than three times in September from a year earlier.
Leading electronics retailer BicCamera Inc. reported in September a 50 percent increase in total sales across all stores from a year earlier. Expensive home appliances such as refrigerators sold well, according to the company.
However, the growth rate in private consumption was sluggish compared to the first quarter of 2014, which was just before the previous consumption tax rate hike to 8 percent. That period saw quarter-over-quarter growth of 2 percent.
The NLI Research Institute estimates that this year's last-minute demand was about 40 percent of the previous pre-hike rush.
Some people believe that the government's measures to prevent large fluctuations in consumption before and after the tax rate hike were successful, such as the reduced tax rate system and the reward point program for cashless payments.
On the other hand, Taro Saito, an executive of the Economic Research Department at NLI Research Institute, said, "In the first place, consumption fundamentals are weak."
The Cabinet Office's consumer confidence index, which indicates how people feel their life will look in six months time (a seasonally adjusted value covering households with two or more members) fell from the previous month in September, continuing its downward trend for the 20th month in a row. While it recovered in October, it still remains at a low level.
Deteriorating sentiment
When it comes to GDP in the fourth quarter, there is concern that private consumption will be affected by such factors as a slump resulting from the pre-hike surge and suspension of store operations caused by strong typhoons in October. There are influential opinions among private economists that the real GDP is highly likely to post negative growth in the fourth quarter.
A look at October sales released by four major department stores revealed that all of these companies posted an about 20 percent decline year-on-year.
In the Cabinet Office's October Economy Watchers Survey, the diffusion index for current conditions fell 10 points, indicating significant deterioration in consumer sentiment.
Some economic indicators such as capital investment and employment, which have been strong so far, began slowing down.
Masashi Terahata, the executive vice president of JFE Holdings Inc., said at a press conference in November, "We'll reduce capital investment." As the global demand for steel products is declining due to the U.S.-China trade conflict, the company's net profits fell by about 70 percent from a year earlier in the company's midterm account settlements.
As for 2020 and beyond, many have voiced concerns over an economic slowdown after next summer, when the reward point program for cashless payments and the Tokyo Olympics and Paralympics both end.
Little hope for external demand
Great uncertainty over the future of the world economy may also become a risk for an economic slowdown.
In October, the International Monetary Fund downgraded its forecast for global growth in 2019 from 3.2 percent to 3 percent, citing a decline in exports in the manufacturing industry due to the U.S.-China trade row.
According to preliminary GDP estimates for the third quarter of 2019 released in October by the National Bureau of Statistics of China, China's GDP grew 6 percent from a year earlier, which is the lowest rate since 1992, when quarter-over-quarter comparison became available.
Another cause for concern is Britain's withdrawal from the European Union. In December, Britain will hold a general election, where the pros and cons of Brexit will be a big point of contention. Confusion could further escalate depending on the results of the election.
Yasutoshi Nishimura, minister in charge of economic revitalization, said at a press conference Thursday: "Exports of automobiles and electronic parts are weak. Various moves around the world affect Japan's supply chains."
He indicated that the government would deal with the situation by considering new economic measures.
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