Japan: Q3 GDP unexpectedly shrinks
Published 21 November 2014
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This article is no longer current. Please refer to Overseas Business Risk – Japan
Summary
Japan’s economy contracts unexpectedly, putting it into technical recession. The economy was hit much harder than anticipated by the April VAT increase. Nikkei falls 3% over the GDP figures.
Detail
Japan’s Q3 GDP shrank 1.6% annualised rate (-0.4% quarter over the quarter (qoq) in 2013). The negative growth was unexpected (market consensus estimate was around +2.0% annualised: forecast range was from +0.8 and +3.5%) and puts Japan into a technical recession. Fiscal stimulus and rebounding exports have not offset weak domestic demand.
Domestic demand did not rebound in the third quarter as expected. Private consumption edged up slightly, (+0.4% qoq) after a sharp drop (-5.0% qoq) in the second quarter. This was mainly due to continuing weak household expenditure on durable goods (-4.5% qoq after -18.8% qoq in Q2). Private residential and capital investments also remained weak (-6.7% qoq after -10.0% qoq and -0.2% after -4.8% in Q2, respectively) and negative private inventory investment contributed to the shrinkage.
Public expenditure did increase 0.7% qoq against the backdrop of delayed implementation of fiscal stimulus measures, but was not large enough to cancel out such weak domestic demand. Exports gained 1.3% qoq after -0.5% qoq while imports increased 0.8% qoq after -5.4% qoq in Q2, but while supporting the economy (+0.1% point to Q3 qoq growth rate) net exports were not strong enough to make any significant difference.
Economic Minister Amari said ‘the Government needs to do what should be done in order to make current economic lull temporary’, suggesting possible launch of economic measures. Given current fiscal conditions, around 3 trillion yen (£16.5bn) fiscal stimulus is expected, which is much smaller than 5.5 trillion yen measures launched early this year.
In response to the surprisingly disappointing Q3 data, the Nikkei fell 3% as figures worried investors.
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