By Max Sato
(MaceNews) – Japan’s economy for the July-September quarter surged 5.0% on quarter, or an annualized 21.4%, led by a rebound in net exports and consumer spending, but it only recovered just over a half of a record plunge in April-June amid the pandemic-triggered slowdown, Cabinet Office data released Monday showed.
The first expansion in real gross domestic product in four quarters was larger than the median economist forecast of +4.4%, or an annualized pace of +19.0%. It was also the fastest growth since April-June 1980 under the current GDP formula.
It followed the deepest contraction of 8.2% q/q on record (revised down from an earlier estimate of -7.9 %), or an annualized 28.8% (revised from -28.1%) in the second quarter. The previous expansion was +0.05% (+0.2% annualized) in July-September 2019 and +0.4% q/q (+1.6% annualized) in April-June 2019.
In Q3, domestic demand pushed up the total output by 2.1 percentage points after slashing Q2 GDP by an unrevised 4.9 percentage points, while net exports – exports minus imports – raised GDP by 2.9 percentage points after trimming it by a revised 3.3 percentage points in the previous quarter, the Cabinet Office said.
Exports of goods and services rose 7.0% on quarter in July-September after plunging 17.4% in April-June. On the other hand, imports slumped 9.8% in Q3 after rising 2.2% in the previous quarter.
Demand for Japanese automobiles from the U.S. and chip-making equipment from China saw a gradual pickup from the depth of a global slump triggered by waves of coronavirus infections.
Export volumes rose a seasonally adjusted 14.3% on quarter in July-September, recovering some of the 21.4% plunge in April-June, according to earlier data released by the Cabinet Office. The Bank of Japan’s seasonally adjusted real export index rose 13.3% on quarter in Q3, marking the first gain in four quarters after -18.4% in Q2.
Consumers were also adapting to COVID-19 lifestyles, spending more on food to cook at home and ordering goods online while restricting dining out and traveling.
Private consumption, which accounts for about 55% of GDP, jumped 4.7% on quarter in Q3, for the first gain in four quarters, after slumping 8.1% (revised down from -7.9%) in Q2. It made a positive contribution of 2.6 percentage points to the third-quarter GDP.
By contrast, business investment dipped 3.4% on quarter in Q3 for the second straight drop after shrinking 4.5% (revised up from -4.7%) in Q2. It trimmed GDP by 0.6 percentage points.
Factory output rebounded in Q3 but it was not strong enough to revive business investment for upgrading equipment and expanding automation, a key segment of the economy that has shown no signs of recovery amid the uncertain global outlook.
Private-sector inventories made a negative contribution of a 0.2 percentage point to Q3 GDP as companies used stockpiles of goods for higher demand in shipments while revving up production.
Public investment rose 0.4% on quarter in Q3, the second straight rise after +1.2% (revised up slightly from +1.1%) in Q2. It made no contribution to overall output in Q3.
MODERATING GROWTH
Looking ahead, economists expect Japan’s economy to continue growing in the final quarter of 2020, backed by a pickup in consumer sentiment, but they also warn that a spike in coronavirus infections in many parts of the world is likely to slow down economic activity again.
Economists on average have forecast that the domestic economy would expand 4.04% at an annualized pace in October-December, before slowing further to 2.46% in January-March 2021, according to the latest monthly ESP Survey of 34 forecasters by the Japan Center for Economic Research released last week.
Consumer confidence has been improving but the outlook remains uncertain amid the global pandemic.
The government-subsidized ‘Go To Travel’ campaign, which offers discounts on accommodations and transportation, appears to be supporting the hard-hit tourism industry, but critics point out that encouraging cross-provincial movement of people could spark another wave of coronarius infections in many parts of Japan
The Economy Watchers sentiment index for Japan’s current economic climate jumped 5.2 points to an over six-year high of 54.5 in October on a seasonally adjusted basis (the highest since 55.7 in January 2014), the sixth straight monthly rise after gaining 2.8 points. The index rose above the key level of 50 for the first time since January 2018.
The Watchers outlook index showed sentiment about the situation two to three months ahead marked the third straight rise in October, but the pace of improvement decelerated to a 0.8-point gain after climbing 5.9 points in September and 6.4 points in August.
The survey indicates whether respondents with jobs most sensitive to economic conditions – taxi and truck drivers, department-store sales staff and restaurant and shop owners — think economic conditions have improved or worsened from three months before.
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Contact this reporter: max7sato@gmail.com.
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