German and Japanese GDP Growth Similarities and Differences

May 26, 2009

German and Japanese real GDP plunged at seasonally adjusted annualized rates (saar) of 11.5% and 14.8% during the half-year between 3Q08 and 1Q09.  These are the largest economies in Europe and Asia, and they experienced similar declines in business investment — 36.5% saar in Germany and 30.0% saar in Japan.  Exports comprised the other area of extreme weakness, tumbling twice as much in Japan (60.2% saar) than in Germany (31.0% saar).  Personal consumption (down 3.7% saar) amplified the drop in Japanese GDP but rose 0.4% in Germany, exerting a negligible effect on GDP growth in that economy.  Construction was a fairly neutral factor in Japan (-0.5% saar) but generated a sizable drag (-7.5% saar) in Germany.  Public sector demand was more stimulative in Japan (3.0% saar) than Germany (0.4% saar).  Over the four quarters to 1Q09, net foreign demand accounted for 5.5 percentage points (ppts) of the 6.7% drop in German GDP and 4.0 ppts of the 9.7% decline in Japanese GDP.

In the first quarter of this year alone, inventory run-offs exerted substantial drags on growth in both economies amounting to about 2 ppts of Germany’s 14.4% annualized drop in GDP and around 4 ppts of Japan’s 15.2% annualized GDP decline.  The sharp correction of inventories and better trends in survey and activity data provide some optimism that GDP will decline at considerably slower rates in both economies in the current calendar quarter.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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