Japan GDP Q4 2016


Japan: Stronger private consumption and investment boost Q4 GDP

March 8, 2017

The Japanese economy grew at a faster rate than previously reported in Q4 as private consumption managed to grow mildly and investment recorded a healthy expansion, according to revised data released on 8 March. GDP rose 1.2% in Q4 over the previous quarter in seasonally adjusted annualized terms (SAAR), which was above the 1.0% increase reported in the first release. The print matched Q3’s result and represented the fourth consecutive positive reading. On an annual basis, economic activity rose 1.6% in Q4. The print was down from the 1.7% increase reported in the first estimate and marked an acceleration from Q3’s 1.1% rise.

The upwardly-revised figure reflected that, although weak wage growth continues to weigh on private consumption, it still expanded a slight 0.2% in Q4, up from the flat reading in the first estimate. A declining unemployment rate is positively contributing to shoring up household spending. Unlike private consumption, investment remains strong on the back of healthy demand for Japanese goods and the Central Bank’s accommodative monetary policy. Growth in gross fixed capital formation was revised up from 1.1% in the first release to 3.4% in the second estimate. On the downside, public consumption steadied at 1.0% in the second estimate, down from 1.6% in the initial release. The contribution from the external sector to overall growth was unchanged.

Despite the upward revision, the reading fell short of the 1.7% growth that market participants had expected. As a result, analysts are wary that the specter of an economic downturn is becoming more real than before as private consumption remains sluggish. Moreover, downside risks could quickly materialize if the Trump administration adopts a more restrictive trade policy that could hit Japan’s all-important external sector.

The Bank of Japan (BoJ) expects the economy to expand between 1.3% and 1.6% in the fiscal year 2017, which ends in March 2018. In the subsequent fiscal year, the BoJ sees GDP growth of between 1.0% and 1.2%. FocusEconomics Consensus Forecast panelists see GDP expanding 1.0% in calendar year 2017, which is up 0.1 percentage points from last month’s projection. In 2018, the panel sees the economy growing 0.8%.

Author: Ricard Torné, Head of Economic Research

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Japan GDP Chart

Japan GDP Q4 2016 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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