Japan: Economy rebounds sharply in Q3
November 16, 2020
According to a preliminary reading, economic activity bounced back strongly in the third quarter, with GDP increasing 21.4% in seasonally-adjusted annualized terms (SAAR), contrasting the historic 28.8% fall logged in the second quarter. On an annual basis, GDP contracted 5.8% in Q3, following the previous quarter's 10.2% decrease.
Domestically, the rebound in SAAR terms was spearheaded by surging private consumption: Household spending grew 20.1% in Q3, having contracted 28.7% in Q2, as restrictions on daily life were eased during the period. Meanwhile, public spending grew at the fastest rate since at least 1990, expanding 9.3% (Q2: -1.4% SAAR). However, fixed investment dived 11.7% in Q3, marking the worst reading since Q4 2019 (Q2: -10.6% SAAR), amid heightened uncertainty and depressed business sentiment.
On the external front, exports of goods and services rocketed 31.3% in seasonally-adjusted annualized terms in the third quarter, which marked the best reading since Q3 2011 (Q2: -53.4% SAAR). Conversely, imports of goods and services deteriorated, plunging 33.8% in Q3 (Q2: +9.0% SAAR), marking the worst reading since Q1 2009. As such, the external sector contributed a substantial 12.2 percentage points to overall growth in Q3, contrasting markedly the 11.8 percentage-point subtraction in Q2.
Looking forward, growth is expected to decelerate in the final quarter of the year as the sharp rebound loses steam. Furthermore, a spike in daily infections in November bodes ill for domestic activity, while surging rates in Europe and the U.S. are a cause for concern for the external sector. However, the significant and sustained fiscal and monetary stimulus packages announced since April should continue to bolster the recovery somewhat.
Regarding the outlook, Takashi Miwa, an economist at Nomura, commented:
“[…] The rise in real GDP in Q3 made up for much of the pandemic-driven decline in Q2. But we think much of this was driven by a one-time release of demand built up under the state of emergency declaration in Japan and during lockdowns overseas. In Q4 onward, we expect a lingering pandemic impact on corporate earnings and household incomes, and we see a risk that economic activity could be depressed by the accelerated rise in COVID-19 case numbers around the globe. We therefore forecast a slower economic recovery from the Oct-Dec quarter.”
Author: Stephen Vogado, Economist