Japan: Stronger private consumption behind upward revision to Q1 GDP

Although more recent data confirmed that the Japanese economy expanded in Q1, GDP has been moving sideways in the last five quarters, which has cast doubts about the state of the country’s recovery. Without the implementation of deep structural reforms, Japan is resorting to fiscal and monetary stimulus to rekindle growth. Against this backdrop, analysts believe that further easing could be in the pipeline. GDP rose 1.9% in Q1 over the previous quarter in seasonally adjusted annualized terms (SAAR), according to new data that was released on 8 June. The reading was a notch above the 1.7% increase reported in the first release and represented a reverse from the 1.8% drop tallied in Q4. On an annual basis, economic activity rose 0.1% in Q1. While the print was up from the flat reading tallied in the first estimate, it marked a deceleration over Q4’s 0.7% expansion.

The upwardly-revised figure showed that growth in private consumption was stronger than in the previous estimate report (first estimate: +1.9% quarter-on-quarter SAAR; second estimate: +2.6% qoq SAAR). Moreover, investment in the private non-residential sector fared better than in the previous estimate report (first estimate: -5.3% qoq SAAR; second estimate: -2.6% qoq SAAR) as did gross fixed capital formation (first estimate: -3.6% qoq SAAR; second estimate: -2.7% qoq SAAR). Conversely, the contribution to growth from the external sector weakened slightly from 0.8 percentage points in the first estimate to 0.7 percentage points.

The Bank of Japan (BoJ) expects the economy to expand between 0.8% and 1.4% in fiscal year 2016, which ends in March 2017. In the subsequent fiscal year, the BoJ sees GDP growth of between 0.0% and 0.3%. FocusEconomics Consensus Forecast panelists see GDP expanding 0.6% in calendar year 2016, which is down 0.1 percentage points from last month’s projection. In 2017, the panel also sees the economy growing 0.6%.