Japanese growth surprisingly positive in the third quarter – thanks to exports

The Japanese economy was surprisingly positive in the third quarter: gross domestic product increased by 0.5 percent (quarter-on-quarter) after 0.2 percent in the second quarter. This means the economy was more robust than expected and equated to an annualised expansion rate of +2.2 percent (Q2: +0.7% Q/Q, annualised). Since the middle of the year, the economy has been driven mainly by exports, which rose by 2 percent (quarter-on-quarter), with exports of components for smartphones and other electrical articles having a particularly positive impact. Private consumption on the other hand just about managed a slight increase with growth of only +0.1 percent. Corporate investment did little more than stagnate, increasing by +0.1 percent over the second quarter.

All in all, Japan’s economy was therefore very susceptible recently to the eventful external factors. While the demand for exports in the third quarter alone contributed 0.5 percentage points to economic growth, thanks to sector-specific special effects in the IT industry, and could therefore account for more than two-thirds of total growth, domestic demand remained very muted. There are still arguments in favour of the government supporting final quarter growth with additional expenditure as part of its fiscal policy. It is striking that the Bank of Japan recently sounded a serious warning against the threat of an economic setback. It is obviously convinced that export growth will not be enough to continue to significantly support the Japanese economy in the coming quarters, so as to secure the economic recovery.

 We continue to see negative risks on the export side, especially since Japan seems to depend very heavily on economic momentum in China (which is weakening increasingly) and in light of the strong yen. The positive effects that were hoped for from the Trans-Pacific Partnership (TPP) will now disappear following Donald Trump’s election as the new president of the United States. He clearly spoke out in his election campaign against existing and new planned free trade agreements and is therefore likely to bury any previous TPP plans. A significant recovery in Japanese consumer demand, which is the most important growth component, is doubtful any time soon. The further setback in consumer confidence in October does not convey any positive hope either. We anticipate little upside momentum here – despite the very low unemployment rate at present – so that capacity-effective capex is unlikely to provide much support.

Given that the government’s fiscal package announced in August is expected to temporarily boost Japanese economic growth from the winter of 2016/17 onwards, we anticipate positive growth once again in the final quarter of 2016. However, we doubt it will reach the same strong momentum of the third quarter. Following publication of the third quarter figures, we now expect slightly higher economic growth of 0.8 percent for the year 2016 as a whole. Supported by fiscal policy, Japan’s gross domestic product is expected to grow by 0.9 percent in 2017.


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