Exports continued to recover in August while import volumes fell. Indeed, we expect net trade to provide a sizeable boost to growth this quarter following a huge drag in Q2.
Huge boost to GDP growth from net trade in Q3
- Exports continued to recover in August while import volumes fell. Indeed, we expect net trade to provide a sizeable boost to growth this quarter following a huge drag in Q2.
- The 14.8% annual fall in export values in August was in line with our forecast for a 15% fall and slightly stronger than the Bloomberg median of a 15.6% y/y fall. It marked an improvement from July’s 19.2% y/y fall. Meanwhile, import values were down 20.8% y/y. (See Chart 1.) Imports values were flat in monthly terms but were propped up by slightly stronger import prices – our estimates suggest that import volumes fell around 2% m/m in August. By contrast, export values rose 5.9% in m/m terms, while volumes likely rose by around 5% m/m.
- Exports to China were up 5.1% y/y in August – the second consecutive month of positive annual growth. Meanwhile, exports to Western Europe rose sharply from -32.5% y/y to -15.3% y/y in August, while exports to North America fell 21.2% y/y – broadly unchanged from July.
- Strong demand for ICT technology linked to working from home resulted in exports of electric machinery only falling 5.5% y/y. And while car exports remain well below pre-virus levels, they were only down 16.9% y/y in August which is a marked improvement from July’s 30% annual fall.
- After incorporating today’s data, we are forecasting an 8% q/q rise in exports of goods and services this quarter and a 5% quarterly fall in imports. As such, net trade should boost GDP growth by as much as 2%pts in Q3.
- The rebound in new export orders in the manufacturing PMI suggests that the sharp rebound in exports will continue over the coming months. (See Chart 2.) But while goods exports will continue to recover as activity picks up in Japan’s trading partners, exports of goods and services may not reach pre-virus levels until early-2022.
Chart 1: Trade Values (% y/y)
Chart 2: PMI Mfg New Export Orders & Export Volumes
Sources: Refinitiv, Markit, Capital Economics
Table 1: External Trade
Sources: Refinitiv, Capital Economics *CE Estimates
Tom Learmouth, Japan Economist, email@example.com