Japan: Export Growth is Slowing Sharply

June trade figures released overnight confirmed that Japanese export engine has been turned off as export growth has slowed sharply in Q2 08. Net foreign trade has been a substantial drag on growth in Q2 and we now feel confident that GDP growth will be negative in Q2 and likely more negative than our current fore-cast of -0.1% q/q GDP growth in Q2. Based on today's trade figures -0.3% q/q seems more likely.

Looking into the details export growth in current prices in June declined to -1.7% y/y from 3.8% y/y in May while import growth accelerated to 16.2% y/y from 4.4% y/y, boosted by a higher energy bill. Hence, import growth is currently running well ahead of export growth and cutting significantly into the trade balance sur-plus (see chart 1). In volume terms export growth has slowed sharply in Q2 and somewhat surprisingly im-port growth is now running ahead of export growth even in volume terms (see chart 2). Overall volume ex-port declined 2.5% q/q in Q2, while import volumes have been largely unchanged. Hence net foreign trade will probably subtract close to 0.4pp-point from q/q GDP growth in Q2 (our earlier estimate was -0.1% pp).

From the Japanese trade figures it is clear that weakness has become more widespread in the Global econ-omy in Q2, with especially Japanese exports to EU and rest of Asia slowing significantly (see chart 3 and chart 4).

Danske Bank

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