Japan: Economy shrinks in fourth quarter on declining exports
February 13, 2012
The Japanese economy contracted in the fourth quarter as the external sector was severely affected by a strengthening yen, weaker global demand and the impact of the Thai floods on the country's manufacturing sector. In the fourth quarter, GDP fell 2.3% over the previous quarter in seasonally adjusted annualised terms. The Q4 drop contrasted the revised 7.0% expansion recorded in the previous quarter (previously reported: +5.6% quarter-on-quarter saar) and overshot the 1.3% decline expected by the market. On an annual basis, economic activity contracted 1.0% over the same quarter the year before (Q3: -0.5% year-on-year). The fourth quarter reading was mainly affected by a sharp contraction in the external sector, whereas domestic demand continued to grow, albeit at a much slower pace (Q3: +3.8% qoq saar; Q4: +0.2% qoq saar). In particular, private non-residential investment rose 7.9% over the previous quarter (Q3: -0.1% qoq saar), whereas private consumption, which makes up about 60% of GDP, moderated to 1.2% (Q3: +4.2% qoq saar). Meanwhile, government consumption remained broadly unchanged at 1.4% (Q3: +1.1% qoq saar). The external sector deteriorated sharply in the fourth quarter, with exports of goods and services contracting 11.9% over the previous quarter, well below the 39.0% expansion tallied in Q3. On the other hand, imports grew 4.1% (Q3: +14.2 qoq saar) on the back of the rising fuel purchases needed to boost electricity generation. As a result, the external sector's annualised net contribution swung from plus 3.1 percentage points in the third quarter to minus 2.6 percentage points in the fourth. In the full year 2011, GDP slipped 0.9%, after rebounding 4.4% in 2010. The Bank of Japan expects economic activity to contract 0.4% in the fiscal year ending in March 2012 and to rebound 2.0% in the following fiscal year.