Japan: Revised GDP data confirms economy's poor performance in Q1
June 8, 2018
A second data release confirmed Japan’s economy contracted for the first time in nine quarters at the start of the year. According to revised data released by the Cabinet Office on 8 June, the economy contracted 0.6% over the previous quarter in seasonally-adjusted annualized terms (SAAR) in Q1, which was unchanged from the preliminary estimate. The first-quarter result followed the upwardly revised 1.0% expansion in Q4 2017 (previously reported: +0.6% quarter-on-quarter SAAR). The print represented the end to the longest streak of growth, of two years, seen in the Japanese economy since the 1980s. Q1’s downturn came on the back of a poor performance in the domestic sector. In annual terms, GDP grew an upwardly revised 1.1% in Q1 (previously reported: +0.9% year-on-year), moderating from Q4’s revised 1.9% growth (previously reported: +1.8% yoy).
The revised figures confirmed domestic demand shrank notably in the quarter, driven by a contraction in investment and consumption. Although growth in fixed capital formation in Q1 was revised up, it still recorded a contraction of 0.2% (previously reported: -2.1% qoq SAAR). The second estimate revealed private non-residential investment fared better than initially reported, whereas public investment contracted as opposed to the flat print previously reported. Housing investment dropped more than initially reported, recording the steepest decline in over three years. Consumption growth was relatively unchanged from previous estimates.
The contribution from the external sector was unchanged, as the figures for both imports and exports of goods and services were unrevised. Growth in exports of goods and services moderated to 2.6% (Q4: +9.2% qoq SAAR) on the back of a drop in shipments of electronic components and equipment. Imports of goods and services also slowed significantly in Q1, easing to 1.2% from 12.9% in Q4. The annualized net contribution from the external sector improved, however, from minus 0.4 percentage points in Q4 to plus 0.3 percentage points in Q1.
The deterioration in Q1 demonstrates the economy is still vulnerable to economic shocks, despite the Bank of Japan’s monetary stimulus policy. On a brighter note, the contraction is unlikely to be more than a one-off result, and the economy is expected to return to growth in Q2. GDP in Q2 should be supported by healthy exports amid solid global demand and a recovery in domestic demand amid elevated business confidence.
Author: Lindsey Ice, Economist