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.