Japan’s GDP Reviewed In Third Quarter Using United Nations Standard

By Arthur Greene December 8, 2016
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Japan unexpectedly cut its reading of third-quarter economic growth to an annualized 1.3 percent, from a preliminary estimate of 2.2 percent expansion. The revision was driven by drops in business spending and in private inventories.

The gross domestic product (GDP) expanded just 0.3% in July-September and 1.3% annually, the Cabinet Office said on Thursday in a revised estimate. That’s down sharply from preliminary estimates of 0.5% quarter-on-quarter and 2.2% annually. Economists forecast an upward revision to both indicators.

Last month, the Cabinet Office surprised the markets with a much stronger than expected Q3 report, which signaled that robust government spending and record stimulus were beginning to translate into faster growth. However, experts warn the world’s third-largest economy risks further downside in the near term, as a volatile trade sector and weak consumer spending continue to hamper the recovery.

Business investment fell in the third quarter, and inventory growth was lower than initially estimated. Much of the growth in the quarter came from net exports. Shipments to China, especially mobile-phone parts, held up well.

The latest indicators suggest moderate expansion has continued into the fourth quarter. In October, industrial production grew for the third straight month, the first such streak since 2013, though consumption and wage growth are showing few signs of a major upswing.

The new calculation method, which conforms to a United Nations standard called System of National Accounts 2008, which the country used to revise the GDP brings Japan closer to Mr. Abe’s goal of achieving nominal GDP of ¥600 trillion by around 2020. It gives more weight to services and boosts the GDP of countries such as Japan that spend aggressively on R&D.

Private inventories subtracted 0.3 percentage points from GDP (preliminary reading -0.1%)

Private consumption rose 0.3 percent in the third quarter from the previous quarter (preliminary reading +0.1%)

Net exports, or shipments less imports, added 0.3 percentage point to GDP (preliminary reading +0.5%)

The GDP deflator fell 0.2 percent from a year earlier (preliminary reading -0.1%)

The government has changed the base year for GDP data to 2011 from 2005.

Under the new methodology, which reflects the latest international guidelines, R&D costs are treated as capital formation, rather than as intermediate inputs that are used up during the production of other goods and services.

And while Japan's recovery has been unsteady, the economy is "growing bit by bit", said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"With slack consumption at the moment and slow capital spending, the economy may not look like it's expanding," he added.

"But it will carry on growing steadily even though the number may not be that strong."
By Arthur Greene December 8, 2016

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