Japanese third quarter growth may have turned out to be stronger that expected, but it was an outcome built on shaky ground.
In fact so transitory were the reasons for the bigger increase that analysts are confidently forecasting Japan will see negative growth this quarter, as the one-off factors disappear.
Growth in the quarter was boosted by a weird combination of strong consumer demand for air conditioners (it was the hottest summer in over a century), smokers stockpiling cigarettes ahead of a huge increase in cigarette taxes and spending ahead of the end to a government subsidy for fuel-efficient cars (and greener appliances as well).
Some economists argue that the strong spending has cut into future demand (like the cash for clunkers scheme has done in other markets, for example) and we will see the economy shrink in the fourth quarter.
Japan’s economy grew for the fourth straight quarter in the three months to September with GDP, rising an annual 3.9% from the same period in 2009 and 0.9% the June quarter when growth was a revised 1.8% annual (1.5% previously).
The government said the economy, benefited from the higher spending by consumers and businesses.
Private consumption, which accounts for about 60% of GDP, rose 1.1% from the previous quarter, much faster than forecast.
That added 0.7 of a percentage point to growth in the quarter, by far the most important contribution.
Public investment decreased 0.6 of a percentage point, but corporate capital investments climbed 0.8%.
On a nominal basis, GDP climbed an annualized 2.9% in the reporting period (deflation increased it to 3.9%), which corresponds to a 0.7% (0.9%) growth from the April-June period.
But the faster than forecast rise in consumption driven by the purchase of fuel-efficient cars in the quarter before a government tax break finished in September, and smokers buying cigarettes before a tax rise on October 1. The car scheme finished on September 30.
These influences and other factors, such as the weather driven rise in sales of air conditioners and TVs (and because of a tax break for greener, more efficient products) in the quarter, saw domestic demand add 1.0 percentage point to GDP growth after adding a revised 0.1 in the previous quarter.
Consumer durable goods spending contributed 0.6 points to quarterly GDP growth, or two-thirds of total growth for the quarter.
That so-called ‘eco-point’ scheme has been extended to the end of next March, but the value will halve from then from the level in the September quarter. That is likely to see a drop off in sales for many products and a lower impact on demand, especially from April onwards.
So without those influences, it’s hard to see consumption rising again this quarter to again boost growth.
Indeed Bloomberg says that a survey of analysts suggests the market is looking for the quarter on quarter growth to retreat to around 0.3% this quarter.
Barclays is forecasting negative growth this quarter of around 0.3%, according to reports quoted on Marketwatch.com
The outcome for the quarter was at odds with a fall in industrial production in September that exceeded forecasts, weaker than expected exports for the month and continuing price deflation.
Both the Cabinet Office and the Bank of Japan have cut their assessments of the economy, with the Cabinet office describing the economy as “pausing.”
Last week’s figures showed Japan’s current account surplus widened 24.3% in September from a year ago to Y1.96 trillion ($A23.8 billion), the first rise in two months.
Japanese exports continued to grow, rising 15.9% from a year ago to Y5.55 trillion ($A67.6 billion), while imports rose by 10% to Y4.62 trillion ($A56.28 billion).
But that was less than forecast and export growth was again weaker than in previous months.
The GDP figures had more interesting detail on the trade performance.
In Q3, net exports (exports minus imports) made hardly any contribution to GDP growth – only a miserly +0.02 percentage point – as export growth continued to slow to +2.4% q/q in July-September from +5.6% in April-June and the 7% growth rate in the March quarter.
In fact the net export contribution was the worst since a negative 0.9 percentage point contribution in the March quarter of 2009.
A drop in Asian exports led the slowdown in overall exports.
On a customs-cleared basis, the volume of Japanese exports to Asia fell 2.7% q/q in Q3 while shipments to the US rose 6.2% and those to the European Union gained 2.0%.
Imports rose 2.7% q/q in Q3, slowing from +4.0% in Q2.
But analysts said Japanese exports still posted the sixth consecutive quarterly gain, with the September quarter’s 2.4% growth led by construction and other industrial machinery, while imports were up for the fifth quarter in a row (and despite the higher yen), with crude oil and liquefied natural gas as well as TVs and air conditioners topping the list.
