Japan: Economy still projected to slowdown in 2018 – Deutsche Bank

Analysts at Deutsche Bank forecast lower than 1% annualized growth of Japan on real final sales (real GDP minus inventories), which they believe represents the underlying economic activity, for the five quarters from Q4 2017 to Q4 2018, with the weakness in activity particularly in Q2 and Q3 2018.

Key Quotes

“We forecast real GDP to grow 1.2% and 0.7%, and real final sales to increase 1.5% and 0.6%, in 2017 and 2018, respectively.”

“The reasons for economic slowdown are twofold: work-style reforms and cyclical factors. Work-style reforms restrain economic activity via shorter work hours on household income, corporate earnings, and potential growth. They should manifest themselves as a miniature of the shorter work hour shock of the early-1990s. The symptoms of cyclical slowdown include 1) slower improvement of our business cycle leading index and a peak in our Nowcast index, 2) inventory cycle rapidly approaching a phase of unintended accumulation of inventories, 3) slower growth in employee compensation, and 4) maturation of capital investment cycle.”

“Optimism has been widespread not only in Japan but also in other developed countries. However, a large part of the improvement since mid-2016 in leading indicators of these countries has come from financial and survey indicators, while improvement in real economy components is limited. Capacity utilization has still been well below the pre-GFC peak levels. Under these conditions, the fall in unemployment rate tends to over-estimate the narrowing of the output gap. We remain cautious against the one-sided optimism, which does not take into account these perspectives.”

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.