Japanese, U.S. and Euro Area First-Quarter Growth

May 19, 2011

Japanese real GDP imploded 3.7% at an annualized rate last quarter, while U.S. real GDP advanced by 1.75%.  Real GDP in Japan was 1.0% lower than a year earlier and 5.6% below its pre-recession peak.  U.S. real GDP was 2.3% higher than in the first quarter of 2010 and 0.6% above the pre-recession level.  The United States has experienced seven straight quarters of expanding GDP.  In contrast, the drop of 3.7% in Japanese GDP followed a decline of 3.0% annualized in the final quarter of 2010 prior to the Sendai earthquake, confirming that Japan is in a recession.  The present quarter is also likely to see Japanese GDP contract, but analysts are hopeful that a decent pace of recovery can emerge during the summer months, fostered by reconstruction of damaged buildings and other facilities.

In the two quarters between 3Q10 and 1Q11, Japanese GDP fell 3.4% annualized, while U.S. real GDP went up 2.4%.  In other 1Q11-over-3Q10 comparisons, personal consumption dropped 3.1% annualized in Japan and advanced 3.4% in the United States.  Non-residential investment grew 4.7% in the United States but slipped at a 1.5% annualized rate in Japan.  U.S. exports increased 6.8%, while Japanese exports eased 0.3%.  Government spending dropped 3.5% in the U.S. and by 0.1% in Japan.  The one area where Japan got outright support over those two quarters was in residential investment, which increased 8.0% compared to a 0.5% pace of decline in the United States.

Private domestic final demand accounted for 2.0 percentage points (ppts) of U.S. growth, and inventories chipped in another 0.9 ppts during the first quarter of 2011.  These growth supports were mitigated by drags of 1.0 ppts in public spending and and 0.1 ppts in net exports.  Over in Japan, private domestic final demand exerted a negative 1.9 percentage point effect on first-quarter GDP growth, and inventories and net exports produced headwinds that depressed GDP growth by 1.8 and 0.6 percentage points.  Government spending made a 0.6 ppt positive growth contribution.

Nominal U.S. GDP increased 3.7% at an annual rate between 4Q10 and 1Q11, whereas Japanese nominal GDP plunged by 5.2% last quarter

Japan’s GDP price deflator sank 1.9% between the first quarters of 2010 and 2011.  The Bank of Japan ended its first five-year experience with quantitative easing in the first half of 2006, convinced that deflation had ended.  But over the five years between 1Q06 and 1Q11, the GDP deflator fell by an additional 5.6% cumulatively.  The U.S. GDP price deflator was 2.3% higher in 1Q11 than in 1Q10.

The above comparisons cast the U.S. economy in a better light than Japan.  That’s been the norm since Japan’s financial crisis struck in the early 1990s.  The United States had also outperformed Europe’s economy most of this time but not during the last quarter.  In the first quarter of 2011, real GDP in the euro area advanced 0.8% or about 3.2% at an annualized rate in spite of the weakness of the region’s peripheral economies, which have been whacked by high long-term interest rates, weak competitiveness, and fiscal cutbacks.  Portugal, like Japan, suffered negative growth in both 4Q10 and the first quarter of this year and as a consequence had negative on-year GDP growth (0.7%) for the first time since 4Q09.  Growth in Spanish and Italian GDP was barely positive in those quarters, and their on-year GDP rises were thus held to a mere 0.8% and 1.0%.  Greek GDP produced a surprising 0.8% non-annualized increase last quarter but still showed a huge 4.8% on-year drop in activity.

Germany, France, Holland, Belgium and Austria all expanded faster than the euro area as a whole during 1Q11.  French growth of 1.0%, most since the second quarter of 2006 and following a disappointing 0.3% pace in the final 2010 quarter, revealed an impressive reacceleration of activity in the common currency’s second largest economy.  German GDP expanded about 6% on quarter and by 4.8% from a year earlier.  Dutch and Belgian GDP were 3.2% and 3.0% greater than in 1Q10, and Austria recorded rapid on-year growth of 4.0%.  Real GDP in Euroland as a whole expanded 2.5% between 1Q10 and 1Q11, somewhat more than forecast and three times faster than the 0.8% increase in the previous year between 1Q09 and 1Q10.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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