Japan: Economy contracts at a sharper rate than previously estimated in the third quarter
According to a comprehensive estimate, GDP shrank 3.6% in seasonally-adjusted annualized terms (SAAR) in the third quarter, below the 3.0% contraction from the preliminary estimate and contrasting the 2.0% increase recorded in the second quarter. On an annual basis, GDP grew 1.2% in Q3, marginally below the 1.4% increase in the preliminary estimate and notably down on Q2’s 7.3% rise.
Domestically, Q3’s downturn in SAAR terms was broad-based and revealed the impact that extended state of emergency measures had on the economy during the period. Household spending fell 5.1% SAAR in Q3, contrasting the 2.4% increase recorded in Q2, as public vigilance concerning the record-high levels of Covid-19 cases during August and September weighed on spending. Moreover, fixed investment shrank 8.2% in Q3 (Q2: +3.4% SAAR), marking the worst result since Q2 2020. Contrastingly, public spending growth improved notably to 4.1% in Q3 (Q2: +2.9% SAAR).
Externally, exports of goods and services contracted 3.5% in Q3 (Q2: +10.4% SAAR), marking the worst result since Q2 2020. Similarly, imports of goods and services declined 4.1% in Q3 (Q2: +16.5% SAAR), marking the worst reading since Q3 2020. As a result, the external sector contributed 0.1 percentage points to the overall reading in Q3, contrasting the 0.8 percentage-point subtraction in Q2.
Looking ahead, the economy is projected to return to growth in the fourth quarter, as activity rebounds following the end of state of emergency measures on 1 October. Moreover, the election victory for PM Fumio Kishida will ensure a continuation of expansionary fiscal and monetary policies in the short term, which should boost growth heading into 2022.
Regarding the outlook, Takashi Miwa, chief Japan economist at Nomura, commented:
“Although the global spread of the Omicron variant [of Covid-19] is a threat that will need to be watched closely, we note that since October, the waning of the pandemic has brought about a recovery in the comings and goings of people and some relief from supply constraints. We therefore expect economic reopening to progress in October–December onward, with economic growth likely to pick up as a result.”