Japan: Japanese economy fails to keep up momentum in Q4
February 15, 2016
Despite more than three years of Abenomics, latest national accounts data suggest that the country is unable to return to a sustainable growth path and this is adding pressure to the Bank of Japan (BoJ) to trigger its bazooka again in its March monetary policy meeting. GDP fell 1.4% in Q4 over the previous quarter in seasonally adjusted annualized terms (SAAR), which contrasted the revised 1.3% rise tallied in Q3 (previously reported: +1.0% quarter-on-quarter SAAR). Japan’s economy contracted twice in the last three quarters. Q4’s print was slightly below the 1.2% decline that market analysts had expected and represented the largest decline since Q3 2014. On an annual basis, economic activity expanded 0.5% in Q4 (Q3: +1.7% year-on-year). In the full year 2015, GDP expanded 0.4%, which was above the flat growth tallied in 2014.
Disappointing performance in household spending, along with a drop in exports, led Q4’s deterioration. Analysts believe that the sharp fall in private consumption (Q3: +1.5% qoq SAAR: Q4: -3.3% qoq SAAR) mainly reflects the continued upward trend in food prices, which is eroding real household spending. On the upside, growth in government expenditure accelerated in Q4 (Q3: +0.8% qoq SAAR: Q4: +2.1% qoq SAAR). As a result of solid corporate profits, investment remained strong and gross fixed investment expanded 0.6% in Q4 (Q3: +1.0% qoq SAAR). Growth in private non-residential investment hit a three-quarter high of 5.7% (Q3: +2.9% qoq SAAR).
On the external side, the slowdown in emerging-market economies and a protracted global economic recovery dampened export dynamics. Exports of goods and services declined 3.4% over the previous quarter in annualized terms (Q3: +10.9% qoq SAAR). Imports followed suit and contracted 5.6% (Q3: +5.2% qoq SAAR). As a result, the external sector’s annualized net contribution to overall growth inched down from 0.8 percentage points in Q3 to 0.6 percentage points in Q4. Far from improving, the situation of the external sector will likely worsen in Q1 as the yen appreciated to levels last seen in 2014 in the first days of February.