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Japan: GDP soars in Q1 on strong domestic demand

May 15, 2014

In Q1, GDP rose 5.9% over the previous quarter in seasonally adjusted annualized terms (SAAR). The expansion marked an acceleration over the meager 0.3% increase recorded in Q4 and also represents the highest growth rate since Q3 2011. In addition, the expansion beat the 4.2% rise that market analysts had expected. On an annual basis, economic activity increased 3.0% in Q1 (Q4: +2.5% year-on-year), which marked the largest gain since Q2 2012.

The acceleration in Q1 reflects a significant improvement in domestic demand and healthy growth in the external sector. Private consumption accelerated to an 8.5% increase in Q1 (Q4: +1.5% quarter-on-quarter SAAR), which was the largest expansion since 1997. Conversely, government spending decelerated to a 0.5% increase (Q4: +1.1% qoq SAAR). Gross fixed capital formation grew 12.1% in Q1 (Q4: +7.3% qoq SAAR), while private non-residential investment registered a 21.0% increase (Q4: +5.8% qoq SAAR).

Exports of goods and services expanded a healthy 26.3% over the previous quarter in annualized terms (Q4: +1.8% qoq SAAR). Meanwhile, imports expanded at their fastest pace since 1989, jumping 27.7% (Q4: +15.5% qoq SAAR) due to a weak Japanese yen and soaring purchases of fuel to compensate for the country’s nuclear shutdown. The external sector’s annualized net contribution to overall growth rose from minus 2.2 percentage points in Q4 to minus 1.1 percentage points in Q1.

Economic growth accelerated sharply at the outset of the year propelled by robust private consumption ahead of the sales tax hike that was implemented in April. That said, the front-loaded increase in consumer spending has prepared the ground for a major downturn in the next period. According to our panel, GDP will contract 3.9% in seasonally adjusted annualized terms in Q2.

The Bank of Japan (BoJ) expects the economy to expand between 0.8% 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 1.5%. FocusEconomics Consensus Forecast panelists see GDP expanding 1.3% in calendar year 2014, which is unchanged from last month’s projection. In 2015, the panel also sees the economy growing 1.3%.


Author: Ricard Torné, Lead Economist

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Japan GDP Q1 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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