Consumption in Japan

Japan - Consumption

Economy expands quicker than initially expected in Q4 2018 on stronger investment

Comprehensive data for the fourth quarter corroborated that the economy returned to growth after a barrage of natural disasters hit the country in the third quarter. According to revised data released by the Cabinet Office on 8 March, GDP rose 1.9% over the previous quarter in seasonally-adjusted annualized terms (SAAR), a stronger expansion than the 1.4% increase initially estimated (Q3: +2.4% SAAR). In annual terms, GDP expanded 0.3% in Q4, accelerating slightly from Q3’s 0.1% growth.

A stronger-than-expected rebound in investment led the overall acceleration in economic growth. Private non-residential investment expanded 11.3% in Q4, up from the preliminary estimate of a 9.8% increase. As a result, gross fixed capital formation rose a faster 6.6% in Q4 (previously reported: +6.1% SAAR). Conversely, growth in private consumption was weaker than initially reported, with a 1.6% increase (previously reported: +2.4% qoq SAAR), casting doubts over the sustainability of the recovery and questioning Prime Minister Shinzo Abe’s reforms aimed at shoring up household spending. Growth in public spending and the contribution from the external sector were left broadly unchanged compared to the first estimate.

Looking forward, Takashi Miwa, an analyst at Nomura, notes that:

“Judging from core statistics, it appears quite likely that real exports and real consumer spending have been tracking on the weak side in 2019 Q1. Given that the rebound from real negative growth in 2018 Q3 has been less than impressive, we believe that Japanese real economic growth has likely fallen close to negative territory.”

The median GDP forecast among BoJ members is 0.9% for FY 2019 and 1.0% for FY 2020. FocusEconomics Consensus Forecast panelists see GDP expanding 0.9% in calendar year 2019, which is down 0.1 percentage points from last month’s projection. In 2020, the panel sees the economy growing 0.6%.