Japan: Q3 GDP growth revised up on strong investment
December 8, 2017
The economy continues to grow at a solid pace, as strong overseas demand for Japanese goods amid healthy global growth translates into resilient manufacturing and investment activity. According to revised data released by the Cabinet Office on 8 December, in Q3 the economy expanded 2.5% over the previous quarter in seasonally-adjusted annualized (SAAR) terms—higher than the 1.4% increase originally reported but lower than Q2’s stellar 2.9% rise. Q3’s revised rate of overall expansion overshot market analysts’ expectations of a 1.5% increase. In annual terms, GDP grew 2.1% in Q3, matching the preliminary result and marking the strongest growth in two years.
The upward revision mostly reflected stronger private non-residential investment, which expanded 4.3% (previously reported: +1.0% quarter-on-quarter SAAR). This healthy revision, along with better-than-expected public investment, led gross fixed capital formation to expand 0.2% in Q3, contrasting the 2.0% drop initially reported. Private consumption was broadly unchanged at a 1.9% drop (previously reported: -1.8% qoq SAAR) as consumers spent less on automobiles and mobile phones.
The contribution from the external sector was left unchanged as the figures for both imports and exports of goods and services were unrevised.
Overall, the economy is benefiting from strong external demand, the positive effects of which reverberate through the economy. That said, private consumption, the main driver of the economy accounting for around 60% of total GDP, remains the primary weak spot, despite Prime Minister Shinzo Abe’s policies aimed at spurring household spending and boosting persistently low inflation. That said, a tight labor market and strong economic dynamics should lead consumption to pick up in the coming quarters.
Japan GDP Forecast
The Bank of Japan (BoJ) expects the economy to expand 1.4% in FY 2018, which ends in March 2019. In the subsequent fiscal year, the BoJ sees GDP growth at 0.7%. FocusEconomics Consensus Forecast panelists see GDP expanding 1.2% in calendar year 2018, which is unchanged from last month’s projection. In 2019, the panel sees the economy growing 1.0%.