Japan: Economy rebounds strongly in third quarter
November 14, 2011
The Japanese economy expanded at its fastest pace since the first quarter of 2010, recovering from the 11 March earthquake on the back of surging exports and resilient private consumption. In the third quarter, GDP climbed 6.0% over the previous quarter in seasonally adjusted annualised terms. The strong reading contrasted the 1.3% drop recorded in the previous quarter and narrowly exceeded the 5.9% expansion expected by the market. Moreover, economic activity remained flat over the same quarter last year. The robust print was driven by a recovering external sector and improving domestic demand, which expanded 4.2% over the previous quarter (Q2: +1.9% qoq saar). In particular, private non-residential investment contributed to growth by rising 4.4% over the previous quarter (Q2: -1.9% qoq saar) on the back of companies' efforts to restore production after the earthquake. Meanwhile, private consumption, which makes up about 60% of GDP, expanded 3.9% (Q2: +0.7% qoq saar) while government consumption growth moderated to 1.6% (Q2: +2.7% qoq saar). The external sector improved markedly due to soaring export growth, which benefited from the recovery of the disrupted supply chains of industrial products. Exports rebounded from an 18.4% contraction in the second quarter to a 27.4% expansion in the third, while imports jumped 14.5% in the same period (Q2: +0.4% qoq saar). As a result, the annualised net contribution swung from minus 3.1 percentage points in the second quarter to plus 1.7 percentage points in the third. Despite the strong growth recorded in the third quarter, the outlook remains bleak, as analysts envisage a sharp deceleration in the coming quarter, amid a cooling global economy, the yen's persistent strength and the returning supply chain issues related to the Thai floods. Against this backdrop, the Bank of Japan expects economic activity to expand between 0.2% and 0.4% this fiscal year ending in March 2012 and between 2.0% and 2.4% in the next fiscal year.