Japan’s economy contracted by more than expected at the start of the year, confirming the UK as the fastest-growing country in the G7 in the first quarter.
Official figures published on Friday showed a 0.2 per cent quarterly fall in Japan’s GDP between January and March, greater than the 0.1 per cent drop forecast by economists. The data, which are the last estimates for growth in the G7 group of advanced economies, compare to the 0.7 per cent growth recorded in the UK over the same period.
It means that the UK grew faster than the US, Canada, Germany, Italy and Japan at the start of the year: a feat celebrated by the government even though it is no longer a formal “target” for Rachel Reeves, the chancellor, who dropped the goal last year of becoming the fastest-growing G7 economy in this parliament.
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Japan, the world’s third-largest economy, posted its first negative quarterly GDP reading in a year. The 0.2 per cent contraction follows a 0.6 per cent expansion recorded at the end of 2024. On an annualised measure, the Japanese economy contracted by 0.7 per cent, worse than the 0.3 per cent projection made by economists polled by Bloomberg.
Japan’s economy looks to have been hit by global trade uncertainty before Donald Trump’s April 2 tariffs announcement, which fell outside the first-quarter estimates. Japan’s net exports fell in the quarter, driven mainly by a sharp fall in services exports of 3.4 per cent. Services includes tourism spending, which may have been crimped by a rise in the yen at the start of the year. The currency gained 0.2 per cent against the US dollar on Friday, hitting a ten-day high.
Kelvin Lam, economist at Pantheon Macroeconomics, said Japan’s economy was suffering from trade uncertainty “while consumption is spluttering under rising food inflation and worsening trade war headlines. Although the most damaging phase of the trade war came after the first quarter, with reciprocal tariffs announced and auto tariffs imposed in April, we expect second-quarter GDP to reflect this fully.”
The Trump administration paused a 24 per cent import levy on all Japanese goods and a 25 per cent tariff on car exports to the US market last month as part of a 90-day reprieve. The two sides have not yet agreed a deal to limit tariffs and non-tariff barriers and no breakthrough is expected before Japan holds elections for its upper house of parliament in July.
