Jan-Mar 2014 First Preliminary GDP Estimate
High growth achieved due to last minute demand; growth rate same as during previous tax hike
May 15, 2014
Summary
◆The real GDP growth rate for Jan-Mar 2014 was up by 5.9% q/q annualized (+1.5% q/q), thereby achieving positive growth for the sixth consecutive quarter, while exceeding market consensus as well (up 4.2% q/q annualized and up 1.0% q/q). Domestic demand was up 1.7 percentage points due to major growth in personal consumption associated with last minute demand, bringing in positive contribution for the sixth quarter in a row.
◆Performance by demand component shows personal consumption up 2.1% q/q, its sixth consecutive quarter of growth. Real compensation of employees fell for the third consecutive quarter with figures down by 0.3% q/q. Even so, personal consumption experienced growth associated with last minute demand prior to the consumption tax hike. The scale of last minute demand compared to the previous consumption tax hike in April, 1997 when personal consumption grew +2.1% q/q during the Jan-Mar period, is about the same when considering only a simple q/q rate of change.
◆As for the outlook for the Japanese economy, the period of Apr-Jun 2014 is expected to see a decline in GDP for the first time in 7 quarters due to the reactionary decline occurring after last quarter’s last minute demand. However, the effects of the reactionary decline are expected to hit bottom at the end of April and then begin easing up, supported by increases in base wages by some major corporations. Corporations in general are feeling pressured to raise wages due to the stringent supply and demand situation for labor. Therefore possibilities are good that personal consumption will enter a growth trend in q/q terms by the Jul-Sep quarter. Exports are expected to grow as overseas economies, led by the U.S., continue to expand, and as Japan improves its global competitiveness thanks to the weak yen. Increasing exports will lead to production growth and improved earnings, and this is expected to trigger more CAPEX. Hence we believe the Japanese economy will be back on the growth track by the Jul-Sep 2014 period.
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