Japan saw a surprisingly upbeat report on third quarter GDP yesterday, which is good news for what still is our second most important export market.
While it did underline how much the economy still depends on exports for growth, it did also surprise on the upside.
But economists warn that with all the uncertainty of Donald Trump’s election as US president and some anti-free trade, anti growth policies in his kitbag, the Japanese economy faces an uncertain outlook.
But thanks to a solid performance by exporters the economy expanded by an annualised 2.2% in the third quarter, faster than the 0.9% increase markets had expected, growing at an annual 0.7% in the June quarter.
It marked the third straight quarter of expansion as growth quickened to a rate of 0.5% in the three months to September, from the 0.2% rise in the June quarter.
External demand – or exports minus imports – added 0.5 percentage point to GDP, due to a bounce in exports from the prior quarter, and gains from falling imports caused by the higher yen, weaker oil and gas prices and weak domestic demand.
It marked the biggest contribution since April-June 2014 as exports grew 2.0%, the fastest gain in a year.
Private consumption, which accounts for roughly 60% of GDP, rose 0.1%, unchanged from the second quarter, adding to concerns that the benefits of Prime Minister Shinzo Abe’s Abenomics stimulus drive are yet to spread to households – as seen in tepid annual wage rises and continuing deflation.
But it has to be pointed out that Japan’s first estimates of the previous quarter’s GDP performance are now notoriously reliable and tend to be revised downwards on many occasions.
It also suggests that unlike China and the US and even the eurozone, growth remains tepid and unable to build on itself over time to drive growth, profits, wages etc higher.
Nominal growth — which does not adjust for price changes — was significantly weaker at 0.8% annual for the quarter, reflecting Japan’s continuing deflation. That has in turn led to weak wage demands, removing the fuel needed for higher consumption.
The Bank of Japan added to its stimulus in September by capping 10-year bond yields at 0% and promising to overshoot its inflation target of 2% (which was supposed to have been hit by now, but is off to 2018 or beyond as a credible target).
A small positive is that the Abe’s government fresh fiscal stimulus package announced mid year should take effect early next year.
