Japan’s Economic Contraction A Natural Phenomenon
Sometimes, economic progress is a hostage to fortune of nature – one of the clearest examples of this would be the devastating tsunami that struck Japan in March 2011, leaving thousands dead and significant damage to the nation’s infrastructure.
Nature is being blamed for a sharp contraction in the Japanese economy in Q3 of this year. Japan is on the “ring of fire”, a zone where tectonic plates collide, triggering earthquakes. Japan suffered a magnitude 6.7 earthquake in early September which killed at least nine people and triggered major landslides on the island of Hokkaido. Earlier in the quarter, Japan was badly affected by severe flooding which led to 8 million people being forced to evacuate their homes and was also battered by a typhoon. If that wasn’t enough, Japan suffered from a heatwave following the flooding which was blamed for 80 deaths and put 22000 in hospital with heat-related complaints, such as sunstroke.
In the wake of a quarter hard-hit by mother nature, it is perhaps unsurprising that Q3 GDP fell at an annualised rate of 1.2%, returning to contraction after the one-quarter respite in Q2 which saw growth of 1.9%. The reversal in growth seen between Q2 and Q3 this year is the sharpest decline for 3 years.
On the positive side, the decline in Japanese economic output ought to be a one-off event since it was largely due to nature. On the other hand, Japan’s economy could be hurt by the China-US trade war. The country is a major contributor to global supply chains exporting car components, electronic components and industrial machinery in addition to its own finished products. There is already some evidence of slowing trade in Asia as a consequence of the trade war and this will feed into the Japanese economy.