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Jul-Sep 2015 1st Preliminary GDP Estimate

Second consecutive quarter of negative growth due mainly to inventory adjustment

November 16, 2015

Satoshi Osanai

Shunsuke Kobayashi

Summary

◆The real GDP growth rate for Jul-Sep 2015 (1st preliminary est) declined by -0.8% q/q annualized (-0.2% q/q). Meanwhile, market consensus was down by -0.2% q/q annualized
(-0.1% q/q). This is the second consecutive quarter for real GDP to record negative growth. Personal consumption and exports achieved growth, but a decline in capex spending and major inventory adjustments brought downward pressure on overall results. If we were to apply the overseas standard whereby two consecutive quarters of negative growth means the economy is in a recession, these results would suggest that this may be what has occurred. However, the main reason for the negative growth was inventory adjustment and the extent of the decline was not great. Considering this fact, while at the same time judging the tone of Japan’ s economy by averaging out the level of real GDP, we do not think that it has in reality buckled under.


◆Performance by demand component in the Jul-Sep 2015 results shows personal consumption up by +0.5% q/q, the first time it has achieved growth in two quarters. However, it did not recover the same amount of ground it lost in the Apr-Jun decline (-0.6%). Hence recovery in personal consumption lacks real punch. Capex was down by -1.3% q/q, its second consecutive quarter of decline, apparently taking a breather from its recent growth trend. Private sector inventory was down for the first time in three quarters, with increase in stock down -0.5% pt in comparison with the previous period, contributing greatly to this period’s decline in real GDP. Meanwhile, exports achieved growth for the first time in two quarters at +2.6% q/q.


◆Our basic economic scenario sees Japan’s economy gradually making a comeback from its temporary lull as the effects of the overseas economic slowdown ease up and personal consumption recovers backed by a good employment environment and improving incomes. Personal consumption is expected to continue its recovery due to these factors, and move toward a comeback despite occasional ups and downs. Meanwhile, exports are expected to continue a moderate recovery while experiencing both strong and weak points as the effects of the slowdown in overseas economies eases up. As for capex, a gradual recovery is seen despite ups and downs due to record-setting corporate earnings.

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