On Monday, the Japanese Cabinet Office released the latest economic figures for Japan. Annualized Gross Domestic Product (GDP) was up 1.8%. In other words, the economy was 1.8% stronger than last year at the same time of year. The preliminary reading had been that there was only 0.2% growth, but the final number beat this out by a 1.6% margin. Economists had forecasted 0.7%; once again, the actual number was substantially above expectations.
Domestic demand was resilient. Business also spent large amounts of money. These two factors caused the GDP to grow.
There were also some factors that limited how much the Japanese GDP was able to grow. One of them was falling exports, and the other was global trade tensions, such as those between the US and China.
This was the fourth consecutive quarter of growth. Japan has managed to avoid a recession, however, the situation is still somewhat fragile, and this fragility is just below the surface of the growth.
Marcel Thieliant is a senior Japan economist at Capital Economics. He noted: “While Japan’s economy expanded more rapidly ahead of October’s sales tax hike than initially estimated output is set to shrink in 2020.”
One primary driver of the economy was strong investment from non-manufacturers. For example, retailers invested extensively, which helped the GDP to increase.
Takeshi Minami is chief economist at Norinchukin Research. He commented: “In contrast to that, spending by manfucturers wasn’t so strong. The figures on consumption that were released on Friday were weak. The economy will likely not be able to avoid contraction in the fourth quarter.”
Capital spending exceeded expectations. It was higher than the 1.7% median forecast.
Of course, all of these numbers are about annualized growth. What about quarter-on-quarter growth; how was that? The economy grew 0.4% quarter-on-quarter. This was better than the 0.1% prediction. It was not quite as good as the growth between Q2 and Q3, which was 0.5%, though.
Unfortunately, not everything was rosy. Factory output declined by the largest amount in years in October. This was due to declining demand. The Bank of Japan is making bleak assessments about factory output in the near future. Analysts are worried that less-than-positive trends in factory output could happen again in Q4.
In Japan, private consumption now accounts for 60% of the GDP. Quarter-on-quarter, private consumption went up by 5%. This was better than the preliminary reading, which was 0.1%.
Japan raised its consumption tax in October 2019. The new consumption tax system is somewhat complex, depending on whether the consumer goods are groceries or not (groceries are taxed at 8%, others are taxed at 10%), whether non-grocery food is eat-in (10%) or take-out (8%), etc. Consumers bought many items just before the sales tax hike, which spurred economic growth in Q3.
The government is worried about Q4. Therefore, it has prepared a $122 billion stimulus package to keep the economy running smoothly through the 2020 Tokyo Olympics and beyond.
In Q4, Japan recorded a slight trade deficit. In other words, imports slightly exceeded imports, and cost the country 0.2% in economic growth. However, domestic demand added 0.6% to economic growth.