Japan’s economy contracted more than initially projected in the third quarter, driven by the biggest drop in business spending in nine years amid a series of natural disasters. Growth is expected to recover in the current quarter and continue into next year, but trade tensions and a slowdown in China are major risks
Exports and related business investment have been key growth drivers for Japan in recent quarters. The weakness in capital spending followed the biggest rise in three years the previous quarter and economic expansion is thought to have now resumed
Japan TANKAN Index
The Bank of Japan’s 4Q Tankan index showed companies are more upbeat about current business conditions than we had expected, but the three-month outlook was much less optimistic
There is suspect the weakness reflects concerns about U.S. protectionism and China’s slowdown- and the potential damage these factors could do to exports
Chinese Retail Sales
Activity data for November show further weakening in the Chinese economy – with flagging private consumption the most worrying sign. That’s reflected in a notable slowdown in retail sales growth. Stable demand for consumer staples paired with waning demand for consumer discretionary goods suggests that the slowing economy has undermined confidence
The signs that the economy is struggling even to find a temporary bottom are worrying, as the macro environment is likely to be more challenging in 2019. Policy support is expected to be stepped up, although the extent will depend on the path of the trade war. In a benign scenario of easing trade tensions, we expect reserve requirement ratio cuts of 150 basis points in 2019, with the first installment of 50 bps in 1Q
- China took more steps to defuse trade tensions with the U.S., confirming it will remove the retaliatory duty on automobiles imported from America and preparing to restart purchases of American corn.
- On Wednesday GAM Holding AG reported a company forecast loss of 925m francs, wiping out nearly eight years of earnings since it went public
- Theresa May managed to survive a leadership challenge, however it has dented her authority and still leaves the route to Brexit unclear. Mrs May won a vote of confidence by 200 to 117 votes on Wednesday night
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