Japan: A sharp fall in investment weighs on Q3 GDP
December 8, 2016
The Japanese economy grew at a weaker rate than previously reported as investment fared worse than initially thought, according to revised data released on 8 December. GDP rose 1.3% in Q3 over the previous quarter in seasonally adjusted annualized terms (SAAR), which was below the 2.2% increase reported in the first release. The print represented a deceleration from the 1.8% expansion in Q2. On an annual basis, economic activity rose 1.1% in Q3. The print was up from the 0.9% increase reported in the first estimate and marked an acceleration over Q2’s 0.9% rise.
The downwardly-revised figure reflected that the 0.1% increase in private non-residential investment reported in the preliminary release swung to a 1.4% decline in the second estimate. Moreover, inventories contributed negatively to the overall GDP figure, driving total investment to record the sharpest decline in two years (Q3: -4.2% quarter-on-quarter SAAR). Nevertheless, the worsening investment figure partially reflected the incorporation of international accounting standards and a change in the base year for historical GDP, which was shifted from 2005 to 2011 starting from the Q3 second estimate.
While growth in government spending was revised down from 1.7% in the first estimate to 1.2% in the second release, private consumption was revised up from a 0.3% increase to a 1.3% expansion. The external sector also fared better than initially reported, with exports of goods and services expanding 6.5% (first estimate: +8.1% qoq SAAR) and imports contracting 1.4% (first estimate: -2.4% qoq SAAR). As a result, the contribution from the external sector to overall growth jumped rose from 0.9 percentage points in the initial release to 1.1 percentage points in the second estimate.
The change in the methodology and the base year for GDP also boosted nominal GDP for 1994–2015. As a result, Japan’s 2015 GDP increased from JPY 499 trillion to JPY 531 trillion, which puts the country on track to meet Prime Minister Shinzo Abe’s nominal GDP target of JPY 600 trillion by FY 2020, which ends in March 2021.