Japan’s Third Quarter GDP Grew beyond Expectation; Private Consumption Becomes the King Maker

Amidst news of gloomy economic conditions world-wide, Japan seems to have good news. Its Cabinet office data has indicated that the Japanese economy has come back on track. Its third-quarter GDP growth has outperformed the initial estimation by the Japanese Government.

As per the official data, the Gross Domestic Product of Japan in Q3 (July- September) has grown by 1.8% in comparison to the initial estimation of annualized growth of 0.2%. With this data, the Japanese economy has expanded for the Q4 straight and it has also crossed the economists’ median forecast mark of 0.7% growth.

The recent growth is said to be because of the increased capital expenditure and private consumption. The Q3 growth is the weakest of this year and it hints at the loopholes the Japanese economy still has that can lead to weakened growth for consecutive quarters.

Marcel Thieliant, senior Japan economist at Capital Economics said, “While Japan’s economy expanded more rapidly ahead of October’s sales tax hike than initially estimated, output is set to shrink in 2020, the main reason for the upward revision was that non-residential investment jumped by 1.8% on-quarter instead of the preliminary estimate of 0.9%.”

As per Takeshi Minami, chief economist at Norinchukin Research Institute, this huge GDP growth should be credited to strong investment from non-manufacturers and specifically from retailers. However, the expenditure from the manufacturing sector has not met the expectations. There is also a significant rise in capital expenditure in the third quarter.

It should be noted that the quarter-on-quarter growth for Q3 stands at 0.4%, while for Q2, it was 0.5%. It was a bit shocking to the market as in October, exports and factory output have shown the largest decline of the year and in addition to that, declining demand was also becoming a burden.

As far as private consumption is concerned, it accounts for the largest part of GDP (nearly 60%). It has risen by 0.5% in Q3 and the preliminary reading was 0.4% for the same quarter.

However, the upcoming days may not be that rosy for Japan. The recent VAT hike has hit the market severely as there has been a significant decline in consumption after October. Economists believe that in Q4, Japan may not be able to avoid a contraction unless there is a hike in the exports.