Japanese GDP in 4Q11 and 2011 Were Weaker than Assumed

February 12, 2012

Nominal GDP slumped 3.1% at a seasonally adjusted annualized pace (saar) between the third and fourth quarters, while real GDP fell 2.3% saar, a percentage point greater than predicted. However, third quarter real growth was revised upward to an advance of 7.0% saar from 5.6%.  The swing between the two quarters was mainly caused by net exports, which enhanced third-quarter growth by 3.1 percentage points (ppts)but then depressed fourth-quarter growth by 2.6 ppts.  Inventories had boosted 3Q growth by 0.9 ppts before subtracting 1.2 ppts from GDP growth last quarter.  Consumption was a third culprit, accounting for less than a third as much forward thrust, 0.7 ppts, last quarter than in 3Q.  One area of improvement was in non-residential investment, which had been a neutral factor last summer before augmenting GDP growth by 1.0 ppts in 4Q.

Real GDP last quarter was still 4.0% lower than its pre-Great Recession crest in the first quarter of 2008.  Nominal GDP was 9.2% lower than its peak in 2Q07.

Japan’s GDP price deflator was 1.6% lower in 4Q11 than in 4Q10 and 7.7% below its level four years earlier.  The personal consumption deflator dropped 0.7% between 4Q10 and 4Q11 and 5.9% over the past four years.

Japan experienced a recession last year.  Real GDP dropped 0.9% for the calendar year as a whole.  Personal consumption stagnated, and net exports and inventories exerted respective drags on GDP growth of 0.8 ppts and 0.5 ppts.  Last year was the third year with negative growth in the last four.  After dropping by 1.0% in 2008 and 5.5% in 2009, real GDP had rebounded 4.4% in 2010. 

Over the course of the fourth quarter, economic momentum improved in December.  The preliminary estimate of industrial production, reported at the end of last month, was a gain of 4.0%, and a 1.4% rise in  tertiary index of service-sector activity, twice as much as projected, was announced today.  Despite those rays of hope, the Bank of Japan, which is meeting today and tomorrow, will be under pressure to extend its asset purchase plan.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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