Japan's GDP grows for 7 straight quarters, outlook remains solid

Japan's economy grew faster than expected in the third quarter due to strong exports, posting the longest period of uninterrupted growth in more than a decade.
People are seen at a market street in Tokyo.
People are seen at a market street in Tokyo. PHOTO: REUTERS

TOKYO (REUTERS) - Japan's economy shrugged off a consumer spending dip in the third quarter to post the longest period of uninterrupted growth in more than a decade, showing strong fundamentals.

The economy expanded at a 1.4 per cent annualised rate in July-September on strong exports and slightly above the median estimate for annualised growth of 1.3 per cent. That followed revised annualised growth of 2.6 percent in April-June.

Weakness in consumer spending is expected to be temporary because the economy is near full employment, which should bolster domestic consumption in the future.

Rising capital expenditure and exports are also expected to keep the economy growing, which should ease some concerns about sluggish inflation.

"Japan's potential growth rate is around 1 per cent, so the results for the third quarter show the actual rate of growth is quite high," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

"The jobs market is doing so well that consumer spending is sure to pick up in the future. Capital expenditure still looks healthy. The economy is doing well."

Gross domestic product (GDP) grew 0.3 per cent compared to the previous quarter, which matched the median estimate and followed a 0.6 per cent quarter-on-quarter expansion in April-June, Cabinet Office data showed on Wednesday (Nov 15).

The results show that Japan's economy has grown for the seventh straight quarter, the longest period of expansion since an eight-quarter run from April-June 1999 to January-March 2001.

External demand - or exports minus imports - was the biggest reason for expansion, adding 0.5 per cent to growth.

Shipments of cars and electronic parts to the United States and Asia were strong in the third quarter, reflecting improving global demand, a Cabinet Office official told reporters.

In comparison, negative external demand subtracted a revised 0.2 percentage point from GDP growth in April-June.

Private consumption, which accounts for about two-thirds of GDP, fell 0.5 per cent from the previous quarter, more than the median estimate of a 0.3 per cent contraction to mark the first decline since October-December 2015.

The decline was driven by lower spending at restaurants and hotels, as well as reduced spending on cars and mobile phones, the official said. Bad weather during the quarter may have hurt spending, the official said.

"There's no change to our view the economy is recovering moderately as a trend," Japanese Economy Minister Toshimitsu Motegi told reporters.

"We need to make the recovery a durable one, so we'll proceed with reforms to boost Japan's productivity."

Capital expenditure rose 0.2 per cent in July-September from the previous quarter, less than the median estimate for a 0.3 per cent increase but still up for the fourth straight quarter.

Japan's government will announce a package of economic measures by year-end aimed at increasing investment in skills training and raising productivity.

This long run of growth should encourage the Bank of Japan to stick with the current monetary easing framework, given its argument that inflationary pressure will percolate through the economy as long as growth is on track.