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Japan: The economy exits recession; Q4 data weaker than expected

January 16, 2015

GDP rose 2.2% in Q4 over the previous quarter in seasonally adjusted annualized terms (SAAR), which contrasted the 2.3% drop tallied in the previous quarter. Although the economy exited recession, Q4’s expansion came in well below the 3.6% increase that market analysts had expected. On an annual basis, economic activity decreased 0.5% in Q4 (Q3: -1.4% year-on-year). In the full year 2014, GDP recorded flat growth, which was below the 1.6% increase observed in 2013.

Q4’s expansion reflected a rebound in domestic demand as well as an improvement in the external sector. Private consumption expanded 1.1% in Q4 (Q3: +1.0% quarter-on-quarter SAAR), while public spending slowed to a 0.4% increase (Q3: +0.8% qoq SAAR). Gross fixed capital formation rebounded to a 0.1% increase (Q3: -2.4% qoq SAAR), while private non-residential investment registered a 0.4% expansion (Q3: -0.6% qoq SAAR).

Exports of goods and services grew 11.4% over the previous quarter in annualized terms (Q3: +6.2% qoq SAAR), while imports expanded 5.3% (Q3: +4.3% qoq SAAR). As a result of the strong expansion in exports, the external sector’s annualized net contribution to overall growth rose from 0.2 percentage points in Q3 to 0.9 percentage points in Q4.

While the rebound in economic activity observed in Q4 was weaker than expected, analysts reckon that the delay of the planned second sales-tax hike, the decline in oil prices and a weak yen will support growth in the coming months. As Tomo Kinoshita, Chief Economist at Nomura Securities, points out:

“Corporate and consumer sentiment has improved since December 2014, mainly thanks to the Japanese government's decision in November to push back the consumption tax hike (originally planned for October 2015), and to the sharp decline in crude oil prices. Looking ahead, in addition to these factors, we think the Japanese economy can expect support from a variety of other sources, including higher wages, yen depreciation, and growth in corporate earnings. We think the supplementary budget and other fiscal policies are also likely to provide an economic boost, and consequently, we expect the Japanese economy to grow at a comparatively stronger rate in FY15.”

The Bank of Japan (BoJ) expects the economy to expand between 1.8% and 2.3% in the fiscal year 2015, which ends in March 2016. In the subsequent fiscal year, the BoJ sees GDP growth of between 1.5% and 1.7%. FocusEconomics Consensus Forecast panelists see GDP expanding 1.0% in calendar year 2015, which is unchanged from last month’s projection. In 2016, the panel sees the economy growing 1.4%.


Author: Ricard Torné, Lead Economist

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Japan GDP Q4 2014 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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