More ammunition for critics of the economic policies of Japan’s prime minister has become available with the news Japan is technically in recession with a Q3 GDP contraction of 1.6%.
While the Q2 dip of -7.3% in GDP could be explained by a rise in VAT to eight percent in April, the Q3 contraction is a surprise. Consumers appear unwilling to splash out, and after nearly two years of Shinzo Abe’s “Abenomics”, and a massive stimulus package, the economy seems as sluggish as ever. Exports are squeezed, and warehouses are full of inventory.
The start of the year saw consumers rush to the shops to beat the rise in sales tax, boosting Q1’s figures, but the crash in the following quarter has been revised down twice already, showing consumers stayed at home in droves.
Abe may now delay a second sales tax rise to 10%, and may also call for a snap election to benefit from his lead in the polls over a divided opposition, and improve his parliamentary majority.
But he is walking a tightrope, as a sales tax was a key demand for creditors worried at the size and persistence of Japan’s enormous debt.