Japan: Economic activity rebounds in fourth quarter
According to a preliminary reading, GDP grew 5.4% in seasonally-adjusted annualized rate terms (SAAR) in the fourth quarter, contrasting the 2.7% contraction logged in the third quarter. While coming in slightly below market analysts’ expectations, Q4’s result marked the best reading in a year, and reflected the easing of restrictions at the outset of the quarter amid an advancing vaccination campaign and a steep reduction in daily Covid-19 cases. Meanwhile, on an annual basis, economic growth moderated to 0.7% in Q4, from the previous quarter’s 1.2% growth, placing growth in 2021 as a whole at 1.7% (2020: -4.5% yoy).
Domestically, the upturn in SAAR terms reflected improvements in consumer and capital spending. Private consumption rebounded, growing 11.2% SAAR in the fourth quarter (Q3: -3.7% SAAR) and marking the best reading since Q3 2020. Meanwhile, fixed investment dropped at a softer rate of 2.3% in Q4, moderating from the 9.3% contraction logged in the previous quarter. However, public consumption swung into contraction, shrinking 1.3% in Q4 and contrasting the 4.4% growth clocked in Q3.
On the external front, exports of goods and services increased 3.9% on a SAAR basis in the fourth quarter, which contrasted the third quarter’s 1.1% contraction. In addition, imports of goods and services dropped at a slower pace of 1.1% in Q4 (Q3: -3.7% SAAR). As a result, the external sector contributed 0.8 percentage points to the overall reading in Q4, improving from the 0.4 percentage-point addition in Q3.
Looking ahead, our panel sees economic growth accelerating in 2022 as a whole, driven by a release of pent-up consumer demand and savings, and bolstered by ongoing fiscal and monetary stimulus. However, the rapid rise in Omicron variant cases since that start of the year will likely have an inhibiting effect on activity throughout Q1.
Naohiko Baba, chief Japan economist at Goldman Sachs, sees GDP contracting in Q1:
“In Q1 2022, while no state of emergency has been declared, people mobility has dropped sharply due to the marked spread of the Omicron variant. There are increasing signs of new infections peaking, but we think real GDP growth will turn negative again as a result mainly of tepid consumption.”
However, analysts at Nomura are slightly more optimistic:
“We forecast real GDP growth of 0.2% [SAAR] in Q1 2022, much slower than the 1.1% growth we previously forecast. We expect a full-fledged resumption of economic activity from Q2 2022 onwards as the booster program helps keep the pandemic in check and the easing of supply constraints results in increased catch-up production. We think real GDP will top pre-pandemic levels (which we define as the average for CY 2019) in Q2 2022.”