Jul-Sep 2012 First Preliminary GDP Estimate

First negative growth in three quarters, reflecting deterioration in domestic/overseas demand

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November 12, 2012

  • Masahiko Hashimoto
  • Mitsumaru Kumagai

Summary

◆The first preliminary estimate of Jul-Sep real GDP posted a slide of 0.9% q/q, annualized at -3.5%, the first negative growth in three quarters, almost on par with the market consensus (-0.9%; annualized at -3.6%). Domestic demand made a negative contribution to q/q GDP (-0.2% points). While public demand made a positive contribution (+0.3 points) due to higher public investment, private demand made a negative contribution (-0.4 points) due to lower personal consumption and capex. Overseas demand saw the second quarterly negative contribution in a row (-0.7 points) due to lower exports. Domestic and overseas demand worsened. Meanwhile, nominal GDP declined (-0.9% q/q; annualized at -3.6%) for the second consecutive quarter. The GDP deflator saw a minor q/q slide for the second consecutive quarter and a slide of 0.7% y/y, the 12th quarterly slide in a row and evidence that a deflationary trend continues.

◆In the September Indexes of Business Conditions report (Cabinet Office) the economy was accessed as “signaling a possible turning point,” but this is very likely to be downgraded to “worsening” in the October report meaning that Japan’s economy appears to have entered a recession. Indeed, following the first negative growth in three quarters in Jul-Sep, real GDP is likely to face negative growth in Oct-Dec. Automobile sales will probably remain at a low level for the time being and continue to pull down personal consumption in Oct-Dec as was the case in Jul-Sep. In addition, reflecting the persistent deterioration of corporate earnings due to sluggish exports, conditions surrounding household income will likely continue to be harsh and place downward pressure on personal consumption and housing investment. Meanwhile, it will be some time before exports return to a full-fledged recovery because the EU economy is anticipated to remain stagnant, although the Chinese economy is showing signs of bottoming out. Thus, Japan’s economy is not likely to see a full-fledged recovery before 2013 when Japan’s exports are expected to prompt a course to recovery.

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