China’s Slowdown Drags Japan Chemical Exports

Japan‘s chemical exports faced an 11.7% year-on-year decline in August 2023, amounting to Y873.1bn ($5.9bn). This decrease marks the second consecutive month of reduced total exports, mainly attributed to China‘s ongoing economic deceleration. As per the Ministry of Finance (MoF), organic chemicals exports dropped by 19.1% year-on-year to Y152bn in August. Additionally, plastic materials exports declined by 2.9% to Y237.9bn, despite a slight increase in volume by 1.3% to 412,307 tons.

Trade Deficit Persists

The total exports of Japan, the world’s third-largest economy, marginally decreased by 0.8% year-on-year to Y7.99tr in August 2023. Import figures also contracted significantly, falling by 17.8% to Y8.92tr. As a result, Japan faced a trade deficit for the second consecutive month, with the deficit in August amounting to Y930.5bn, marking a 66.7% year-on-year reduction.

Export Markets Impact

Japan‘s largest export market in August, the United States, saw a 5.1% year-on-year increase in total shipments. In contrast, exports to China, Japan‘s largest overall trading partner, decreased by 11%. This slowdown in China‘s economy is anticipated to impact Japan due to its substantial trade connections.

OECD Growth Predictions

On 19 September 2023, the Organization for Economic Cooperation and Development (OECD) revised its growth prediction for China in 2023 from 5.4% to 5.1%. It anticipates a further slowdown to 4.6% in 2024. In contrast, the OECD increased Japan‘s GDP growth forecast for 2023 to 1.8% from 1.75%, indicating an improvement from the actual expansion of 1.0% in 2022.

The OECD highlighted that Japan is the only G20 advanced economy that has not yet raised policy interest rates. It expects improving wage growth and strong service exports to contribute to Japan‘s GDP growth. According to the latest OECD estimates, global economic growth is projected to be 3.0% in 2023 and then slow to 2.7% in 2024.

Global Economic Outlook

Despite China‘s weaker-than-expected recovery, the OECD anticipates that a significant portion of global growth in 2023-24 will still come from Asia. However, China‘s growth momentum has weakened due to the diminishing impact of reopening and ongoing structural issues in the property sector that continue to suppress domestic demand.

The OECD expects global growth to decrease this year and next, remaining below trend throughout this period. It predicts that annual global GDP growth will be 3% this year, down from the 3.3% expansion in 2022, and further slow to 2.7% in 2024.

OFB’s Insight

Japan‘s chemical exports faced a notable decline in August, primarily influenced by China‘s economic slowdown. Japan‘s trade deficit persisted for the second month in a row. The OECD’s growth predictions reflect the complex economic landscape, with China‘s growth challenges impacting global projections.