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.