Japan Economy Contracts 7.1 Percent In Second Quarter

September 8th, 2014
in News, econ_news, syndication

Largest Quarterly Drop Since Q1 2009

Written by ,GEI Associate

Japan’s GDP contracted at an annualized rate of 7.1% in April-June according to breaking-news-130px7revised data released on Monday. After the 6.1% surge in the previous quarter, a preliminary estimate by the government had shown a 6.8% contraction in the second quarter. The quarter-over-quarter decline was increased to 1.8% (from 1.7%).

The revised contraction cuts short Japan’s continuous string of quarterly expansions since July-September 2012. It also represents the biggest quarterly drop since January-March 2009.

Follow up:

The 20-year history for Real GDP for Japan is shown below:


Two facts of note:

  • Japan has a negative real GDP change over the past six years.
  • Over the past 20 years Japan's real GDP has grown by 17.4% (0.8% compounded per year).

The following summary of the latest data was provided by mni, Deutsche Borse Group:


Back in April, the consumption tax was raised from 5% to 8% as part of the government’s proposal to combat public debt, which has steadily risen since 2007 and is now at over twice the country’s GDP. As predicted by the policymakers, the tax hike presented a serious blow to business and consumer spending, as the revised data for Q2 showed that business investment fell by 5.1% while private residential spending fell by 10.4%, both at annualized rates. See GEI News article from 04 July 2013 for an assessment of this tax policy at the time it was confirmed for implementation.

Both the BOJ and Japanese economists maintained a positive forecast on Japan’s economy despite the weak data; they are predicting the tax hike effects to be temporary and to be followed by a recovery in corporate and consumer spending in the second half of 2014. The results will determine which direction Prime Minister Shinzo Abe will go regarding his stimulus program aimed at ending chronic deflation and his plan to raise the sales tax further to 10% in October 2015.

According to mni, Deutsche Borse Group, the latest monthly ESP Survey of economists by the Japan Center for Economic Research showed that the average forecast for annualized real GDP is +4.01% in Q3 and +2.03% in Q4. Combined with Q1 +6.1% and the current -7.1%, the forecasts would have Japan with about 1.2% GDP gain for the entire calendar year 2014.


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