Japan: Economy grows significantly faster than previously estimated in Q3
The economy expanded 1.8% in Q3 over the previous quarter in seasonally-adjusted annualized terms (SAAR), according to a second GDP release. This was well up from the 0.2% growth previously forecast, market analysts’ expectations of 0.7% growth and also a notch above the 1.7% growth recorded in Q2. In standard annual terms, the economy grew 1.7% in Q3, up from both the initial estimate of 1.3% and Q2’s 0.9%.
The revised expansion in Q3 was primarily due to upgraded estimates for the domestic economy, most notably fixed investment, but also private consumption and public consumption. On the external front, the second GDP release confirmed exports fell in Q3—likely in part due to U.S.-China and Korea-Japan trade tensions—although at a slightly slower pace than initially estimated (Q3: -0.6% qoq SAAR; previously reported: -0.7% qoq SAAR). Import growth, meanwhile, was revised upwards (Q3: +0.3% qoq SAAR; previously reported: +0.2% qoq SAAR).
Going forward, the economy should slow due to the raising of sales tax in October to 10% from 8%, while trade tensions will also drag on momentum. Looking at Q4 specifically, Takashi Miwa, an economist at Nomura, said: “We think [Q4] real GDP growth is likely to show a pronounced negative reaction to [Q3] growth. Some consumption statistics currently available for October onward show a larger decline than that shown in the wake of the April 2014 consumption tax hike. Leading indicators of capex also suggest weakening.”
Nevertheless, the government recently announced a USD 120 billion stimulus package to boost the economy, which should help cushion a slowdown. Around 20% of the stimulus will be spent from December 2019 to March 2020, while the rest will be spent from April 2020 to March 2021. The focus of the spending is on improving natural disaster resilience, supporting businesses affected by trade tensions and paving the way for growth after the 2020 Tokyo Olympics.