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Japan's tax hike expected to hit Asian economies
Publication Date : 15-04-2014
Japanese consumers are nursing their bruised wallets after the country hiked its sales tax from 5 per cent to 8 per cent on April 1, but they are not the only ones.
Exporters elsewhere in Asia that ship their goods to Japan could also suffer from a pullback in consumer demand, according to a new report by Credit Suisse.
Malaysia, Hong Kong and Singapore stand to be the most affected at first glance, said bank economist Santitarn Sathirathai. These three export the most to Japan in the region as a share of their annual economic output.
Malaysia's total exports to Japan amount to 8.1 per cent of its gross domestic product, while Hong Kong's come to 6.4 per cent and Singapore's stand at 6 per cent, Sathirathai noted.
But he added that this data is "potentially misleading" for two reasons.
One is that not all exports that go to Japan are meant to be bought by the consumers in that country. Such shipments "may not go to meet final demand in Japan but are used to manufacture final products that are then exported elsewhere", he said.
Therefore, even if local consumer spending in Japan slows down, it may not affect demand for these exports.
The other reason is that some exports that countries such as Malaysia sell to Japan are consumer essentials, such as energy products.
Demand for such products is likely to be less sensitive to short-term fluctuations in spending, Mr Sathirathai said.
The bulk of Singapore's exports to Japan are machinery and transport products.
These items are among those that consumers stocked up on right before the rise in the sales tax, so they may be vulnerable to changes in spending decisions, he noted.
On the whole, however, it appears that the Philippines and Thailand may be the economies in Asia most affected by a potential slowdown in household spending in Japan, Mr Sathirathai's analysis shows.
A "significant proportion" of their exports are products where price changes have a large effect on demand, he said.
These include textiles and transport and electrical equipment.
"Philippine exports to Japan also look to have benefited from the front-loading of Japanese household spending ahead of the (sales tax) hike," he added.
"As a result, the likely correction in exports to Japan from the Philippines will probably be more severe than in other countries in the second half of this year."
He estimates that for every 1 per cent decline in Japanese household spending, the Philippines' exports to Japan will fall by 2.8 per cent, while Thailand's exports to Japan will drop by 2.7 per cent.
This could result in a "material negative" impact on the economic growth of these two countries in the April to September period, Mr Sathirathai said.
For the full year, the dent in exports to Japan could shave 0.18 percentage points off the Philippines' full-year economic growth and 0.24 percentage points off Thailand's.
The impact on Singapore's exports is expected to be negligible, he added.
The report from Credit Suisse last week also predicts that household spending in Japan will not pick up meaningfully until the middle of next year.
"Our analysis indicates that the negative impact of a tax hike increases gradually before dying out after around five quarters, which in the current context suggests that the impact of the April 1 consumption tax hike will probably be felt continuously into the first quarter of 2015," said analysts Hiromichi Shirakawa and Takashi Shiono.