Japanese 2Q Real GDP Growth Revised Up to 1.5% Annualized from 0.4%

September 9, 2010

Japanese growth last quarter wasn’t as bad as reported initially but still represented a significant deceleration of activity.  Real GDP rose 1.5% at an annualized rate (saar), down from 5.0% in the first quarter and 3.4% in the final quarter of 2009.  Notable revisions occurred in non-residential investment to 6.2% saar from 1.9% reported initially, total public-sector expenditures to minus 1.2% saar from minus 1.8%, and inventories, which exerted a drag of 0.2 percentage points instead of 0.7 percentage points as thought originally.

Here’s what’s still worrisome about this report.

  1. Personal consumption was absolutely flat last quarter, slowing from 2.5% per quarter in the three prior quarters and an annualized 5.2% increase in 2Q09.
  2. Many firms are complaining they cannot compete when the yen is stronger than 84/USD.  Considering that the yen was at 88.5 when the second quarter ended, the strength of business spending that caused the upward revision to 2Q growth is history now.
  3. Japan is too reliant on net exports, which accounted for 1.4 percentage points of Japanese growth in 2Q, that is all but one tenth of the total.  China is rumored to be poised to raise the central bank deposit rate this weekend, thus ratcheting up its slowdown.  Real exports rose 25.8% over the past year, down from a 48.9% advance in the previous statement year.
  4. Nominal GDP still contracted 2.5% saar in 2Q, a sign of continuing deflation.  As long as falling prices are expected, an incentive exists to defer any discretionary spending to get a better price in the future.
  5. Although real GDP was 2.4% higher in 2Q10 than a year earlier, it remained 4.3% lower than the prior cyclical peak.  This shortfall from pre-recession highs is almost as great as in Britain (4.5%), larger than in the euro area (3.3%) and Germany (2.7%), and considerably bigger than in the United States where the gap is just 1.3%.  In Canada, GDP has recovered to within 0.1% of the pre-recession crest, and Australia missed a recession altogether.  The bigger the residual difference between current GDP and its pre-recession level, the greater the economic slack.
  6. Japan also reported today that domestic corporate goods prices were unchanged in August both from July and from August 2009.  They were also unchanged in June.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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