Jul-Sep 2014 1st Preliminary GDP Estimate

◆The real GDP growth rate for Jul-Sep 2014 (1^st preliminary est) declined by -1.6% q/q annualized (-0.4% q/q), recording negative growth for the second consecutive period. Not only did performance fall below market consensus (+2.2% q/q annualized and +0.5% q/q), it fell below the lower level of the outlook, recording minus growth completely outside expectations. Factors behind the major decline in real GDP include anemic growth in personal consumption and a decline in capex despite previous expectations of growth. Private sector inventories also contributed to the major decline.

◆Personal consumption was up +0.4% q/q, the first time it has recorded growth in two quarters. Considering the major drop experienced during the Apr-Jun period due to reactionary decline, growth in the Jul-Sep period was slight, a sign that recovery is lagging. A comeback was seen in some areas, including semi-durables (+3.5% q/q) and non-durables (+2.0% q/q), but improvements were slight considering the steep declines both of these areas suffered in the previous period. Meanwhile, in addition to the lagging recovery in the area of services (-0.0% q/q), durables continued their downward spiral (-4.5%) after having experienced major declines last period, thereby helping to push overall figures downward.

◆Results for the period showed minus growth outside previous expectations and confirmed that the Japanese economy is experiencing stagnation. However, moderate growth is expected to continue during the Oct-Dec period and beyond. Improvements were seen in real employee compensation during the Jul-Sep period (+0.7% q/q), meaning there is a steady undertone in overall conditions influencing households, including employment and income. Although recovery in personal consumption has been lagging since the reactionary decline earlier this year, a comeback is seen in the near future.