Japan Q4 GDP rebounds from disaster-hit Q3 but export growth weak

14, Feb. 2019

TOKYO, NNA - Japan's economy posted the first growth in two quarters in the October-December period, as expected, recovering modestly from a slump caused by a spate of natural disasters in the summer months.

Exports rebounded in Q4, but the pace of increase was slow amid global uncertainty caused by the U.S.-China trade dispute.

The Cabinet Office released preliminary gross domestic product data for the final quarter of 2018 on Thursday.

Key points:

―― Japan’s Q4 GDP grew a real 0.3 percent quarter-on-quarter, or an annualized 1.4 percent, in October-December, in line with economists’ expectations. The rebound was led by domestic demand (+0.6 percentage point contribution) while external demand posted a third consecutive drop (-0.3 percentage point).

―― It followed a sharp Q3 contraction of a revised 0.7 percent q/q, or an annualized 2.6 percent. In 2018, the economy had a bumpy ride, contracting in Q1 and Q3 and growing in Q2 and Q4.

―― Breaking down domestic demand, business investment grew 2.4 percent from the third quarter (+0.4 percentage point contribution) and private consumption expanded 0.6 percent (+0.3 point). Private-sector inventories and public investment trimmed total output slightly.

―― Exports rose 0.9 percent q/q, rebounding from a 1.4 percent decline in July-September, but imports expanded at a faster 2.7 percent pace. This led net exports (exports minus imports) to push down GDP by 0.3 percentage point.

―― For the whole of 2018, Japan’s economy grew just 0.7 percent, about its estimated potential growth rate, after expanding 1.9 percent in 2017 and 0.6 percent in 2016.

Takeaway:

―― Some business sectors are investing in equipment to cope with labor shortages and upgrade obsolete production facilities, but continued uncertainty over global demand is making some firms more cautious about spending, potentially limiting Japan’s prolonged but modest economic recovery.

―― In 2018, all of the GDP growth came from domestic demand, driven by capex and consumer spending, while external demand was flat with a slightly negative bias. This highlights the impact of slower global growth amid the trade row.

―― Going forward, economists expect Japan's economic growth to show a softer tone.