Japan: Exports shore up economic growth in Q3
November 15, 2017
The Japanese economy expanded for the seventh consecutive quarter in Q3, the longest period of growth in more than a decade. Overseas demand was the main driver of growth as healthy global economic dynamics continued to boost the all-important external sector. GDP rose 1.4% in Q3 over the previous quarter in seasonally-adjusted annualized terms (SAAR), which was below the 2.6% expansion in Q2. The print was broadly in line with the 1.3% increase that market analysts had expected. In annual terms GDP grew 1.7% in Q3 (Q2: +1.4 year-on-year), the largest increase in two years.
Japan’s export-driven economy is benefiting from resilient growth among most of its trading partners and solid tourism figures, despite a relatively strong yen. Exports of goods and services swung from a 0.8% contraction in Q2 to a hefty 6.1% expansion in Q3 over the previous quarter in seasonally-adjusted annualized terms. Imports, on the other hand, contracted 6.2% qoq SAAR (Q2: +5.7% quarter-on-quarter SAAR), thus leading to a positive net contribution by the external sector of 2.0 percentage points (Q2: minus 1.0 percentage points).
Domestic demand, however, deteriorated in Q3, signaling that the Japanese economy may have started to cool gradually. Private consumption, which accounts for roughly two-thirds of the economy, contracted 1.8% over the previous quarter in seasonally-adjusted annualized terms (Q2: +2.8% qoq SAAR). Despite declining in Q3, consumer spending should recover in Q4 on the back of an improving labor market. Moreover, unfavorable weather conditions in Q3 likely had a negative impact on household spending. Public spending also dipped into the red in Q3 (Q3: -0.5% qoq SAAR; Q2: +2.4% qoq SAAR). Growth momentum in gross fixed investment waned, contracting for the first time in nearly two years. Gross fixed investment fell 2.0% in Q3, contrasting Q2’s 6.7% rise. Although non-private residential investment expanded for the fourth quarter in a row (Q3: +1.7% qoq SAAR; Q2: +2.6% qoq SAAR), buttressed by high corporate earnings and business confidence, a dip in public capital expenditure and residential investment led to the decline in fixed investment.
The economy continues to post solid economic figures after four years of bold fiscal stimulus and an ultra-loose monetary policy. Although the set of Abenomics policies is succeeding in boosting nominal GDP and tightening the job market, inflation remains stubbornly low, signaling that the Bank’s accommodative monetary policy will likely remain untouched in the foreseeable future. In this regard, deepening economic reforms should be on top of the government’s agenda. The strong backing that Prime Minister Shinzo Abe received in the October general elections should facilitate their implementation.