Japan drags itself out of recession but growth rate underwhelms

16th February 2015


The Japanese economy finally bounced back during the final three months of 2014 but the initial estimates of growth are far lower than had been expected.

Official numbers show that GDP grew by 2.2% on an annualised basis or 0.6% quarter-on-quarter in the October to end of December period – weaker than nearly everyone had anticipated.

Bloomberg has forecast median growth of 0.9%, while Capital Economics was expecting 0.8% expansion.

The world’s third largest economy had contracted during the previous two quarters after spending across the nation took a back seat following a sales tax hike.

Capital economics Japan economist Marcel Thieliant said: “While its economy has finally left the tax-related weakness behind, the increase in GDP fell short of expectations and supports our view that the Bank of Japan will announce more stimulus in April.”

Private consumption rose by 0.3% quarter-on-quarter well below the Bloomberg median of a 0.8% quarter-on-quarter increase. Non-residential investment was even more disappointing: it only edged up by 0.1% quarter-on-quarter last quarter, broadly in line with Capital Economic’s forecast but much weaker than market expectations.

Thieliant added: “The weakness in domestic demand supports our view that output will essentially be flat this year. We also think that net exports will become a renewed drag on growth at the start of the New Year. What’s more, today’s result indicates that the Bank of Japan’s view on growth is too optimistic, and we still believe that the Bank will announce more easing at the late-April meeting.”

In December a snap election in Japan saw ruling Prime Minister, Shinzo Abe and his Liberal Democratic party, win a comfortable majority. The victory was widely seen as an endorsement of his wide-ranging economic reform policies.

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