–Global Trade War May Lead to 2nd Straight GDP Slump in Q2
By Max Sato
(MaceNews) – Japan’s gross domestic product for the January-March quarter is forecast to post its first contraction in four quarters, down a slight 0.1% on quarter, or an annualized 0.4%, in payback for a technical jump in net exports in the previous quarter, but also hit by sluggish consumption amid high costs of living and the murky outlook for global growth triggered by protectionist U.S. trade policy.
The Cabinet Office will release the preliminary GDP data for the first quarter of 2025 at 0850 JST on Friday, May 16 (2350 GMT/1950 EDT Thursday, May 15).
From a year earlier, the Q1 GDP is forecast to have posted a third straight increase, up 1.6%, after a 1.1% gain.
The expected GDP slip would follow the 0.6% rise (annualized 2.2%) in the October-December quarter, when the solid growth was led by a technical rebound in net exports that was caused by a sharper-than-expected slump in imports and masks weak exports and sluggish domestic demand. It would also come after the U.S. economy recorded its first contraction in three years in Q1, down an annualized 0.3%, shrinking after the 2.4% expansion in Q4, largely due to rush imports ahead of stiff Trump tariffs.
Domestic demand is expected to provide a positive 0.4 percentage point contribution to total domestic output in Q1 after trimming Q4 GDP by 0.2 point and boosting it by 0.5 point in Q3. By contrast, external demand (exports minus imports) is estimate to have lowered the Q1 GDP by 0.6 point after adding 0.7 point to the growth in the previous quarter.
“External demand pushed down the growth rate sharply as exports of goods and services fell 0.6% on quarter while imports rebounded a sharp 2.5% in reaction to the slump in the previous quarter,” NLI Research Institute Chief Economist Taro Saito wrote in a report. He estimates that export volumes posted a 0.8% pullback in the first quarter after a 1.7% rise in the previous quarter in light of weak demand from the European Union and flat shipments to Asia.
“Exports to the United States posted their first increase in two quarters but you have to discount the impact of the rush shipments before the high tariffs on auto imports took effect,” Saito said. “Exports to the U.S. are likely to fall in April onward in the face of the auto duties and those to China, although they have bounced back, remain weak given the sharp drop seen in the first half of 2024.”
Looking ahead, Japan’s economic performance in the April-June quarter is expected to remain subdued, likely marking the second straight contraction, as consumers stay frugal amid falling real wages, external demand remains uncertain and firms are cautious about implementing their solid capex plans amid the global trade war instigated by the Trump administration.
“The adverse effects of the Trump tariffs are expected to gradually become apparent in the April-June quarter onward,” Yoshiki Shinke, senior executive economist at Dai-Ichi Life Research Institute, wrote in a report. The drag from the trade war will range widely from a slump in auto exports to the U.S. market and a global decline in investment demand to a possible drop in exporter profits caused by the appreciation of the yen and a slip in consumer confidence, he noted.
“An economic downturn is our main scenario at this point but we would not rule out the possibility of the economy entering a recessionary phase, depending on the degree of downward pressures from the tariffs,” said Shinke.
Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Figures in the previous quarter are in parentheses:
GDP q/q: -0.1% (+0.6%); 1st drop in 4 quarters
GDP annualized: -0.4% (+2.2%); 1st drop in 4 quarters
GDP y/y: +1.6% (+1.1%); 3rd straight rise
Domestic demand: +0.4 point (-0.2 point); 1st rise in 2 quarters
Private consumption: +0.1% (+0.0%); 3rd straight rise (1st clear rise in 2 quarters)
Business investment: +0.8% (+0.6%); 2nd straight rise
Public investment: -1.1% (-0.7%); 3rd straight drop
Private inventories: +0.2 point (-0.3 point); 1st rise in 2 quarters
Net exports (external demand): -0.6 point (+0.7 point), 1st drop in 2 quarters