Japan GDP

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Japan: GDP in Q2 shrinks more than initially reported; casts doubts on second sales tax hike

September 8, 2014

GDP tumbled 7.1% in Q2 over the previous quarter in seasonally adjusted annualized terms (SAAR), according to new data that was released on 8 September. The reading was below the 6.8% decline reported in the first estimate and marked the fastest pace of contraction since Q1 2009. On an annual basis, economic activity fell 0.1% in Q2, matching the preliminary estimate.

The downwardly revised figure was driven by weaker domestic demand, while the contribution from the external sector was left virtually unchanged. Private consumption fell 19.0% in Q2, which was below the 18.7% drop that had been reported previously. Government spending was revised downward from 1.5% growth to a 0.3% increase. Private non-residential investment fared worse than initially reported, plummeting 18.8% (previously reported: -9.7% quarter-on-quarter SAAR), while gross fixed investment followed suit and fell to an 18.0% decrease (previously reported: -12.3% qoq SAAR).

Analysts believe that the worst-than-expected drop in Q2 casts further doubts over the possibility of a second increase in the country’s sales tax scheduled for Q4 2015. In addition, the weak Q2 data add pressure on Japanese authorities to push forward their reform agenda.

The Bank of Japan (BoJ) expects the economy to expand between 0.6% and 1.3% in the fiscal year ending March 2015. In the subsequent fiscal year, the BoJ sees GDP growth of between 1.2% and 1.6%. FocusEconomics Consensus Forecast panelists see GDP expanding 1.3% in calendar year 2014, which is down 0.2 percentage points from last month’s projection. For 2015, the panel also sees the economy growing 1.2%.


Author: Ricard Torné, Head of Economic Research

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