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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.

The Bank of Japan (BoJ) expects the economy to expand between 1.5% and 2.1% in the fiscal year 2015, which ends in March 2016. In the subsequent fiscal year, the BoJ sees GDP growth of between 1.4% and 1.8%. FocusEconomics Consensus Forecast panelists see GDP expanding 0.9% in calendar year 2015, which is unchanged from last month’s projection. In 2016, the panel sees the economy growing 1.5%.


Author: Ricard Torné, Head of Economic Research

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Japan GDP Q1 2015 0

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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