Japan: Q1 GDP posts fastest acceleration in one year
May 20, 2015
GDP rose 2.4% in Q1 over the previous quarter in seasonally adjusted annualized terms (SAAR), which followed the 1.1% increase tallied in Q4 (previously reported: +1.5% quarter-on-quarter SAAR). Moreover, the print exceeded the 2.1% expansion that FocusEconomics Consensus Forecast panelists had expected and represented the fastest pace of expansion in one year. On an annual basis, economic activity decreased 1.4% in Q1 (Q4: -1.0% year-on-year), mainly reflecting a low base of comparison from last year due to the front-loaded increase in consumer spending ahead of the April 2014 sales tax hike.
Q1’s expansion reflected stronger domestic demand, while the contribution to growth from the external sector deteriorated in the same period. Private consumption expanded 1.4% in Q1 (Q4: +1.5% qoq SAAR), while public spending slowed to a 0.4% increase (Q4: +1.1% qoq SAAR). Gross fixed capital formation rebounded to a 0.6% increase (Q4: -0.3% qoq SAAR), while private non-residential investment registered a notable 1.4% expansion (Q4: -0.2% qoq SAAR).
Exports of goods and services grew 9.9% over the previous quarter in annualized terms (Q4: +13.5% qoq SAAR), while imports expanded 12.0% (Q4: +5.8% qoq SAAR). As a result of the strong expansion in imports, the external sector’s annualized net contribution to overall growth swung from plus 1.1 percentage points in Q4 to minus 0.7 percentage points in Q1.
Q1’s healthy economic growth suggests that the country has left behind last year’s recession and that the economy may have shifted into higher gear. As Tomo Kinoshita, Chief Economist at Nomura Securities, points out:
We expect the Japanese economy to stay on a moderate recovery track. On top of good consumer spending momentum from Jun-Jul supported by expected rises in base pay and summer bonuses, we anticipate a contribution to economic recovery from firming capital spending by nonmanufacturers. We also expect exports to benefit from the positive impact on the global economy from a recovery in the US. In addition, we look for a boost to the economy in the near term from government spending of the FY14 supplementary budget.