Japan’s Economy Loses Steam, 7-Year Depression Continues

Econintersect:  The latest revision of Japan’s fourth quarter GDP estimate indicates growth was 1/3 weaker than the first estimate.  The latest data from Japan Cabinet Home Office reported an annualized GDP growth rate of 1.5%, down from the first estimate of 2.2% issued one month ago.  This means that Japan is still emerging from the recession widely attributed to the 60% increase in the national consumption tax last 01 April (5% raised to 8%).  But the strength of the recovery is weak compared to the depth of the recession, with only about 1/6 of the GDP decline total in 2Q and 3Q 2014 recovered in 4Q 2014.

The biggest contributor to the revision was a lower level of domestic demand than previously estimated.  This may still be follow through reaction to the huge tax increase.

The following graph from Trading Economics shows the most recent 12 quarters of real GDP growth quarter-over-quarter.

Japan appeared to have emerged from a six year depression in the first quarter of 2014.  See graph below.  But the real GDP level stayed higher than the peak of 1Q 2008 for only one quarter before the next recession dropped the economy below that level again.  With the convention widely accepted that two quarters are needed to define recession and depression boundaries, the GDP of 1Q 2014 did not provide the necessary 2 quarters of data.  The Japanese depression that started from the GDP peak in 1Q 2008 continues.

Japan appears almost certain to complete the seventh year of a depression.  It will take an additional accumulated gain near 1% for GDP to recover above the 1Q 2008 level and end the depression.

John Lounsbury

Source:

• Quarterly Estimate GDP: Oct – Dec 2014 (Japan Cabinet Home Office, www.esri.cao.go.jp/, 09 March 2015)

• Japan’s Emergence From Recession Weaker Than First Thought (Keiko Ujikane, Bloomberg, 08 March 2015)

• Japan GDP Growth Rate (Trading Economics, 10 March 2015)

• Japan GDP Constant Prices (Trading Economics, 10 March 2015)