Slowdown Confirmed in Japanese GDP Growth

August 13, 2012

Several aspects of Japan’s GDP release were disappointing.

  • Nominal GDP was 0.1% smaller in the second quarter than in 1Q.  That’s a decline of 0.6% at an annualized rate.
  • Deflation persists.  The GDP price deflator was 1.1% below its year-earlier level.  The personal consumption deflator dropped 0.7% on year.
  • Real GDP growth slowed to 0.3% in 2Q from 1.3% in 1Q.  In annualized terms, that’s a deceleration to 1.4% from 5.5%.
  • Foreign demand has been hit by persistent yen strength and sputtering growth in Europe, the United States and even the rest of Asia.  Export growth slowed to a 4.8% annualized rate in the second quarter from 14.3% in 1Q.
  • Spending is subsiding for the purpose of rebuilding earthquake-damaged infrastructure.  Public spending growth was halved to 2.4% annualized from 5.9% in the first quarter.  Spending on public works slowed to 7.2% from 15.2% in 1Q.
  • Personal consumption growth dived to a five-quarter low of just 0.6% annualized from a robust 5.0% pace in the first quarter.  Plans to boost Japan’s sales tax sharply have cheered credit rating agencies but bode ill for the future strength of household spending.

Analysts had been predicting a non-annualized 0.6-0.7% increase of second-quarter GDP.  Even though first-quarter growth was revised upward from 4.7% annualized to 5.5% on such a basis, the greater-than-anticipated deceleration between the first and second quarter got most of the market’s attention.  Japan and the United States posted almost identical growth rates last quarter.  In the first quarter, by comparison, Japanese growth had been almost three times faster than U.S. GDP growth.  Later this year, the U.S. is a good bet to experience faster growth than Japan, and that edge will be maintained in 2013.  Like Europe, Japanese real GDP still has not returned to the level that existed just before the start of the global financial crisis.  Nominal GDP also is smaller than such was five years ago.

In one respect, however, a positive spin can be put on Japan’s economy. Real GDP was 3.5% higher last quarter than in 2Q11.  That was almost half as much as China experienced, amply better than on-year U.S. growth of 2.2%, and 4.3 percentage points above the 0.8% GDP contraction felt in Britain.  This performance will not allay mounting market concerns, where investors are interested mainly in what an economy has done lately.

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



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