Japan: GDP logs longest growth streak since 1980s in Q4
February 14, 2018
Japan’s economy ended 2017 on a weaker footing, due to a negative contribution from net exports resulting from a surge in imports in the fourth quarter. Despite moderating slightly, the economy expanded for the eighth consecutive quarter in Q4, the longest streak of growth since a 12-quarter stretch that ended in 1989, in the wake of Japan’s famous economic bubble. GDP rose 0.5% in Q4 over the previous quarter in seasonally-adjusted annualized terms (SAAR), which was below the 2.2% expansion in Q3. The print also undershot the 1.0% increase that market analysts had expected. In annual terms, GDP grew 1.5% in Q4 (Q3: +1.9% year-on-year).
Domestic demand strengthened in the quarter on the back of a rebound in private consumption (Q4: +1.9% quarter-on-quarter SAAR; Q3: -2.6% qoq SAAR): Household spending benefited from a tight labor market, which is boosting employment and slowly increasing wages. Government spending, however, contracted 0.5% in seasonally-adjusted annualized terms (Q3: +0.2% qoq SAAR), mostly reflecting that fiscal spending was front-loaded in the early part of 2017. Growth in fixed capital formation was flat in Q4 (Q3: -0.5% qoq SAAR). Private non-residential investment was resilient in the quarter, while public investment declined at a softer pace. Housing investment, however, recorded the steepest decline in over three years due to a fall in new property developments.
Japan’s all-important external sector defied the strengthening of the yen in Q4, with exports of goods and services accelerating to 10.0% growth (Q3: +8.7% qoq SAAR). The external sector is benefiting from strong economic activity among most of Japan’s trading partners and healthy tourism figures. The annualized net contribution from the external sector deteriorated, however, from plus 2.2% percentage points in Q3 to minus 0.1% percentage points in Q4, as imports of goods and services soared to a 12.0% rise (Q3: -4.8% qoq SAAR).
The overall deceleration in the quarter could be misleading to fully comprehend Japan’s performance in Q4, as the impressive import growth figure reflected buoyant domestic demand. Moreover, domestic demand gained ground on stronger private consumption, the key economic variable that Abenomics policies is trying to boost. Early data for this year suggests that economic growth will likely accelerate in the first quarter, driven by a strong global demand for Japanese goods.
Japan GDP Forecast
The Bank of Japan (BoJ) expects the economy will expand between 1.3% and 1.5% in the fiscal year 2018, which ends in March 2019. In the subsequent fiscal year, the BoJ sees GDP growth at between 0.7% and 0.9%. FocusEconomics Consensus Forecast panelists see GDP expanding 1.3% in calendar year 2018, which is up 0.1 percentage points from last month’s projection. In 2019, the panel sees the economy growing 1.0%.