Japan GDP Q1 2016

Japan

Japan: Japanese economy avoids recession in Q1

May 18, 2016

The Japanese economy has switched between growth and contraction in the last four quarters, casting doubts about the health of the country’s recovery. In Q1, the economy alternated to the positive side due to stronger private consumption as, this year, February had an additional day compared to 2015. Despite the rebound, analysts still believe that the government will likely unveil further stimulus in the coming month in an attempt to jump-start the economy. GDP rose 1.7% in Q1 over the previous quarter in seasonally adjusted annualized terms (SAAR), which contrasted the revised 1.7% drop tallied in Q4 (previously reported: -1.1% quarter-on-quarter SAAR). Q1’s print was above the 0.3% increase that market analysts had expected and represented the strongest expansion in one year. On an annual basis, economic activity was flat in Q1 (Q4: +0.7% year-on-year).

Private consumption benefited from the positive impact of leap year's additional day in February and expanded 1.9% (Q4: -3.3% qoq SAAR), while growth in government spending was broadly unchanged (Q4: +2.9% qoq SAAR; Q1: +2.8% qoq SAAR). Although investment had been one of the main pillars of growth in the previous quarters, a strong yen and the fall in stock prices drove gross fixed investment in Q1 to contract at the sharpest pace since Q3 2014 (Q4: -0.6% qoq SAAR; Q1: -3.6% qoq SAAR) and private non-residential investment to drop a sharp 5.3% (Q4: +4.7% qoq SAAR).

On the external side, despite a challenging environment, exports rebounded and expanded 2.4% (Q4: -3.1% qoq SAAR), while imports contracted a softer 1.8% (Q4: -4.3% qoq SAAR). As a result, the external sector’s annualized net contribution to overall growth advanced from 0.3 percentage points in Q4 to 0.8 percentage points in Q4.

While Q1’s rebound removes the possibility of Japan entering into recession, at least for now, growth is expected to remain weak in the near future. The earthquakes that hit the Kumamoto prefecture in April have likely had a negative impact on Q2 growth. The appreciation of the yen and poor dynamics in emerging economies are hurting businesses sentiment and the all-important export sector. Moreover, the inconclusive Q1 result (neither too strong nor too weak) is increasing uncertainty whether the government will push through with its plan to hike the consumption tax rate by two percentage points to 10% in April 2017.

The Bank of Japan (BoJ) expects the economy to expand between 0.8% and 1.4% in the fiscal year 2016, which ends in March 2017. In the subsequent fiscal year, the BoJ sees GDP growth of between 0.0% and 0.3%. FocusEconomics Consensus Forecast panelists see GDP expanding 0.6% in calendar year 2016, which is down 0.1 percentage points from last month’s projection. In 2017, the panel also sees the economy growing 0.6%.


Author: Ricard Torné, Lead Economist

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Japan GDP Q1 2016

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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