Japan GDP Q4 2017


Japan: Q4 GDP growth revised up on stronger investment

March 8, 2017

Revised data confirmed that the economy ended 2017 on a strong note, as robust global demand boosted corporate earnings and manufacturing activity, translating into solid investment and private consumption. According to revised data released by the Cabinet Office on 8 March, the economy expanded 1.6% over the previous quarter in Q4 in seasonally-adjusted annualized (SAAR) terms—higher than the 0.5% increase originally reported. Q4’s expansion was, however, below the 2.4% growth in both Q2 and Q3. In annual terms, GDP grew 2.0% in Q4, a notch above the 1.9% rise in Q3 and the strongest reading in over two years.

The upward revision mostly reflected stronger private non-residential investment, which expanded 4.2% (previously reported: +2.8% quarter-on-quarter SAAR). Robust corporate earnings continued to buttress capital expenditure amid improved domestic dynamics and healthy global demand for Japanese goods. Public investment also fared better than initially reported, leading gross fixed capital formation to expand 1.2% in Q4 (previously reported: 0.0% qoq SAAR). In general, Japan’s first estimate for GDP tends to underestimate investment, which translates into stronger investment activity in subsequent GDP updates. Private consumption growth was slightly upgraded in the second GDP estimate, from 1.9% to 2.1%, on the back of Japan’s tight labor market and timid wage gains.

The contribution from the external sector was left unchanged, as the figures for both imports and exports of goods and services were largely unrevised.

In Q4, Japan logged the longest streak of growth since 1989, during Japan’s famed economic bubble. That said, some factors are threatening to derail Japan’s stellar economic performance. U.S. President Donald Trump’s decision to impose tariffs on imports of steel and aluminum has increased the risk of a trade war between the U.S. and key global economies, including Japan, China and the Euro area. If a breakdown of the global commercial system occurs, Japan’s external sector will be hard hit. Moreover, wage growth, despite having risen, remains subdued, casting doubts on whether private consumption will replace exports as the main engine of economic growth.

The Bank of Japan (BoJ) expects the economy will expand between 1.3% and 1.5% in the 2018 fiscal year, which ends in March 2019. In the subsequent fiscal year, the BoJ sees GDP growth at between 0.7% and 0.9%. FocusEconomics Consensus Forecast panelists see GDP expanding 1.3% in calendar year 2018, which is up 0.1 percentage points from last month’s projection. In 2019, the panel sees the economy growing 1.0%.

Author: Ricard Torné, Lead Economist

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Japan GDP Chart

Japan GDP Q4 2017 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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