TOKYO -- The Japanese economy will maintain a modest expansion during the first quarter of 2019, supported by healthy internal demand, analysts generally agree, but they are divided on the prospects for exports as China loses steam.
The real gross domestic product will grow by 1.3% on the quarter on an annualized basis during the January-March period, according to 14 private-sector economists surveyed by Nikkei. This would follow the 1.4% seasonally adjusted expansion for the October-December quarter reported Thursday by the government in preliminary figures.
Sluggish exports to China, which is contending with an economic slowdown, pose a threat to the economy for the moment. Japanese exports to China fell 7% on the year in December. The impact of China's deceleration could sway Japan's economic growth for the coming year.
The economists, on average, expect a 0.3% export increase for the first quarter, but their individual projections, ranging from 0.9% growth to a 0.8% drop, reveal a sharp divide among them.
"Exports will maintain a stable trend due to the economic stimulus package rolled out by the Chinese government," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
But Taro Saito, director of economic research at NLI Research Institute, believes the global environment will weigh on exports. "Against the slowdown in overseas economies, exports will continue to slump," said Saito.
Smartphone output has collapsed in mainland China, reflecting growing concerns there about the trade war with the U.S. There are signs that Chinese are curbing capital investments and private consumption. Last year, China logged 6.6% GDP growth, marking the slowest pace in 28 years.
The question for Japan is whether the impact of the Chinese economic slowdown will extend to its own manufacturing and capital spending. Japanese corporate managers have started taking a defensive approach against the trade frictions and the slackening global economy, said Kentaro Arita of Mizuho Research Institute.
"Some manufacturers are moving to delay capital expenditures, and growth will soften," said Arita.
Repercussions from a global economic slowdown started to reach Japan in the last quarter. In particular, exports of capital goods to China weakened, with shipments of communications equipment slowing.
Still, personal consumption, which accounts for over 50% of GDP, remained firm, helping the economy withstand the headwinds from overseas.
This trend is expected to continue this year, as external pressures build up. The economists see consumption climbing 0.2% in the first quarter from the previous quarter, and capital spending surging 0.5% as well.
Last week, Japanese lawmakers passed a 3.04 trillion yen ($27.4 billion) supplementary budget that funds disaster-proof projects. This comes after last year's 935.6 billion yen extra budget for disaster recovery. As the result of those fiscal measures, public works investments will rise by 1.6%, propping up internal demand.
But to weather external economic pressures, Japan will need to move ahead with reforms that will bolster internal demand. "The government needs to persistently pursue necessary policies, such as deregulation measures that would boost productivity," said Kenshiro Kamo at Hamagin Research Institute in Yokohama.