Summary: Private domestic demand might taper off amid deteriorating global trade

▶　Japan’s Q2 real GDP growth was an annualized +1.8% QoQ, precisely matching APIR’s final　CQM forecast of +1.8%. Private and public domestic demand propped up growth, whereas net exports made a negative contribution. The China-US trade frictions remain the main risk factor to global trade, posing significant challenges to making forecasts.

▶　APIR’s forecast for real GDP growth is +1.0% in FY2019 and +0.5%　in FY2020. The tax hike in October 2019 will inevitably cause a temporary downturn. However, we deem that an economic recession in FY2019 is unlikely due to several factors (see full report).

▶　In addition to energy and non-energy price fluctuations, as well as the impact of the tax hike in October, future trends in prices will be influenced by the planned elimination of child care fees. Considering all these factors, we forecast a core CPI inflation of +0.6% in FY2019 and +0.5% in FY2020.