Japan: GDP grows at slower pace than previously expected in fourth quarter
According to a comprehensive estimate, GDP increased 11.7% in seasonally-adjusted annualized terms (SAAR) in the fourth quarter, somewhat lower than the 12.7% print from the preliminary estimate and slowing markedly from the 22.8% expansion in the third quarter. As such, GDP for the full year fell 4.8% in 2020, matching the preliminary estimate but sharply down from 2019’s 0.3% growth and marking the largest drop since 2009.
Domestically, the Q4 SAAR result was driven by milder growth in private consumption, which increased 9.0% in the quarter. The reading was marginally above the 8.9% preliminary estimate but notably below the third quarter’s 22.0% expansion. Nevertheless, Q4’s reading was still the second strongest rate of growth in at least 25 years, highlighting resilient consumer spending despite spiking Covid-19 infections and the implementation of associated restrictions during the quarter. Meanwhile, public spending also grew at a slower rate of 7.6% in Q4 (preliminary estimate: +8.1%; Q3: +12.1% SAAR), while fixed investment rebounded from the previous quarter, growing 12.7% in Q4 (preliminary estimate: 13.2%; Q3: -8.3% SAAR).
Externally, exports of goods and services surged in Q4, rising 52.4% in SAAR terms and marking the best reading since at least 1994, boosted by electronics demand from regional neighbors (preliminary estimate: +52.3%; Q3: +33.2% SAAR). In addition, imports of goods and services rebounded, increasing 17.0% in the quarter (preliminary estimate: +17.3%; Q3: -29.0% SAAR). As such, the external sector contributed 4.4 percentage points to overall growth in Q4, which, although slightly above the preliminary estimate of a 4.3 percentage-point contribution, was well below the substantial 11.3 percentage-point boost from Q3.
Looking forward, the economy is projected to contract slightly in Q1, as January’s state of emergency declaration impacts activity. Capital and consumer spending are forecast to shrink in the period amid tighter restrictions on daily life, while the external sector is likely to be hindered by elevated daily Covid-19 infections in Europe and the U.S., which will act to dampen demand for key exports. However, the significant and sustained fiscal and monetary stimulus packages announced since April last year should lay the foundations for a recovery from Q2 onwards.
Regarding the outlook, Stefan Angrick, senior economist at Oxford Economics, noted:
“The Japanese economy continues to face near-term headwinds, but the outlook for H2 2021 and beyond is improving. Although the current state of emergency has depressed activity in the service sector, we expect the impact on the economy to be milder than last year’s state of emergency. Mobility and spending should recover from Q2 onward as restrictions are rolled back and the vaccine rollout gains pace. Growth should pick up further in H2 as external demand and investment strengthen. We expect GDP to grow 2.7% in 2021 and 2.2% in 2022.”