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Japan: GDP plummets in Q2 on sales tax hike

August 13, 2014

In Q2, GDP dropped 6.8% over the previous quarter in seasonally adjusted annualized terms (SAAR), which represented the largest contraction since Q1 2011. The quarterly slump greatly contrasted the 6.1% expansion tallied in Q1 but was slightly above the 7.0% decline that market analysts had expected. The sharp downturn mainly reflected a pullback in demand following a sales tax increase implemented in April. On an annual basis, economic activity decreased 0.1% in Q2 (Q1: +3.0% year-on-year), which marked an over-one-year low.

The contraction in Q2 reflected a sharp deterioration in domestic demand, while a sizeable drop in imports buttressed the contribution from the external sector of overall growth. Private consumption plummeted from an 8.4% increase in Q1 to an 18.7% contraction in Q2, which was the largest decline on record. Conversely, government spending expanded 1.5% in Q2 (Q1: -0.4% quarter-on-quarter SAAR). Gross fixed capital formation tumbled from a 19.1% expansion in Q1 to a 12.3% decrease in Q2, while private non-residential investment registered a 9.7% decline (Q1: +34.6% qoq SAAR).

Exports of goods and services fell a mild 1.8% over the previous quarter in annualized terms (Q1: +28.6% qoq SAAR), whereas imports dropped at their fastest pace since Q1 2009, falling 20.5% (Q1: +28.0% qoq SAAR). The external sector’s annualized net contribution to overall growth swung from minus 0.8 percentage points in Q1 to plus 4.4 percentage points in Q2.

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 1.5% in calendar year 2014, which is unchanged from last month’s projection. In 2015, the panel sees the economy growing 1.2%.


Author: Ricard Torné, Lead Economist

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Japan GDP Q2 2014

Note: Quarter-on-quarter seasonally adjusted annualized changes and annual variation of GDP in %.
Source: Cabinet Office (CO) and FocusEconomics Consensus Forecast.


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