Japan’s 3Q GDP Growth Revised Up to 2.5% on Capital Spending

Japan’s economy expanded in the third quarter more than initially reported, as the export recovery drove stronger business investment and rising inventories. Private consumption fell, underscoring the divide between external demand and consumer spending.

Highlights of the GDP report
  • Gross domestic product expanded an annualized 2.5 percent (estimate +1.5 percent) in the third quarter. That compares with a preliminary reading of 1.4 percent.
  • Business spending rose 1.1 percent (estimate +0.4 percent) from the previous quarter. Preliminary reading was +0.2 percent.
  • Private consumption declined 0.5 percent. Preliminary reading was -0.5 percent.
  • Net exports, or shipments less imports, contributed 0.5 percentage point to growth. This was unchanged from the preliminary reading.

Key Takeaways

The Japanese economy has grown for seven straight quarters, its longest expansion since comparable data back to the mid-1990s, revisions to previous data showed. A nearly year-long recovery in exports is driving corporate profits and business investment. A slew of key October indicatorssuggest that while growth may slow a bit, the GDP expansion will continue in the fourth quarter, even as consumer spending remains lackluster. Spending by households on durable goods and services fell during the third quarter from the April-June period.

Economist Views

  • “The solid investment shows Japan’s economy is making a step forward to a self-sustained recovery,” Hidenobu Tokuda, a senior economist at Mizuho Research Institute. “Record corporate profits and demand for IT-related goods and labor-saving investment are helping boost business fixed investment. 
  • “Consumer spending isn’t so strong due to tepid wage growth overall,” Tokuda said. “There is a risk that the recent rise in oil prices may reduce households’ purchasing power.”
  • “On private consumption, this time there was bad weather in the summer, so it’s probably showing up weaker than it actually is,” said Masaki Kuwahara, senior economist at Nomura Securities. “I don’t think this situation will continue, but generally the driver behind the economic expansion is exports, with the addition of domestic capital expenditure.”

Bloomberg Economics

The revised growth figure will incorporate a new method of calculating private consumption, which is likely to push up the historical path of consumer spending, suggesting the economy is stronger than previously thought, Yuki Masujima of Bloomberg Economics wrote before the data release. The new method will give more weight to sales data and less to household surveys, and the result could heighten a debate over whether the Japanese economy has at last emerged from its deflationary slump, Masujima wrote.

Other Details

— With assistance by Toru Fujioka, and Yuko Takeo

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