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Economy in Brief

Japan’s GDP Still Up Sharply But Less Than Before Revision
by Robert Brusca March 11, 2010

The back off in Japan’s core machinery orders this week began to deflate expectations for a capital formation jolt to spur growth. Still, gross capital formation did fall much more slowly in Q4 compared to Q3 as plant and equipment spending swung to post positive results for the quarter. Residential construction continued to fall but the drop is only at about half the pace of the decline of earlier quarters. Domestic demand is up by a mere 2.1% annualized in Q4. Public spending rose at a 2.5% annual rate. But exports are flying, leading growth with a 21% growth rate. That is slower than previous quarters but still, obviously, a very strong rate of growth. Imports, once up a 23% pace in Q3 edged higher at just a 5.1% annual rate in Q4.

Yr-over-year trends show a more pronounced export slowing and more stability in imports. Domestic demand is shrinking year-over-year. Japan’s growth posted a drop of only 1.4% Yr/Yr in Q4 compared to a Yr/Yr drop of 4.9% in Q3.

On balance the Japanese economy is doing better but its improvement is mostly in the hands of the export sector. Fortunately for Japan its two largest export markets, China and the US, are posting improved growth; China’s growth has been very strong. Japan’s strength still derives mostly from its export sector. The domestic economy is marking some growth but with no vigor. Since the main impetus to growth is exports there is some hope that that will translate into expansion and to more capital spending in export and export-related industries. This would help to boost Japan’s output internally even though the real cause of the investment would be external demand. The drop off in core machinery orders this past week began to dash hope that such an effect was gathering steam in the pipeline. Japan’s recovery is still very dependent on what goes on outside its borders. The domestic support for its expansion is minimal. More disturbing is the conclusion that there is little evidence that its export strength is rekindling domestic sources of growth.

Japan's GDP
Consumption Capital Formation Trade Domestic
Demand
GDP Private Public Gross
Fix Cap
Plnt&
Equip
Housing X-M:
lbns E
Exports Imports
Change Q/Q at annual rates of change; X-M is Q/Q change in Blns of real yen
Q4-09 3.8% 2.8% 2.5% -0.4% 3.8% -12.5% 2.9 21.7% 5.1% 1.5%
Q3-09 -0.6% 2.4% 0.3% -11.7% -9.8% -27.7% 2.8 37.8% 23.3% -1.9%
Q2-09 6.0% 4.6% 1.1% -11.0% -15.6% -32.6% 7.5 42.2% -14.7% -1.1%
Q1-09 -13.7% -5.2% 3.2% -22.6% -30.6% -23.7% -7.7 -66.3% -53.9% -11.3%
Change Yr/Yr; X-M is Yr/Yr change in Gap in Blns of real yen
Q4-09 -1.4% 1.1% 1.8% -11.8% -13.9% -24.5% 5.5 -5.3% -15.5% -3.3%
Q3-09 -4.9% -0.4% 2.3% -15.8% -20.9% -20.0% -10.7 -22.9% -16.5% -3.7%
Q2-09 -6.0% -1.1% 2.0% -15.0% -22.0% -9.8% -15.8 -29.4% -18.7% -3.9%
Q1-09 -8.4% -3.7% 0.5% -13.9% -19.6% -0.3% -22.9 -36.3% -17.7% -4.9%
5-Yrs 0.1% 0.8% 1.1% -3.6% -2.3% -8.5% na 1.1% -1.4% -0.3%
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