GDP Collapse More Than Just A Sales Tax Hangover

BMI View: The large contraction in Japan's real GDP in Q214 supports our bearish growth outlook for 2014, and we continue to see full-year growth coming in at 0.9%, compared with consensus expectations of 1.4%. While the poor GDP print is largely the result of the aftermath of the sales tax hike, Japan's economic weakness runs deeper than this, and we continue to see wealth being destroyed by the current policy mix.

Japan's Q214 real GDP collapsed by 6.8% quarter-on-quarter (q-o-q) in seasonally-adjusted annualised (SAAR) terms, supporting our view that full-year growth is set to come in at just 0.9%, far below the 1.4% consensus expectations. The contraction in the economy was largely due to the inevitable hangover effects of the government's sales tax hike, which led to a surge in growth in Q114. However, the fall in real GDP wiped out all the growth since Q113, and we believe that something much more negative is occurring as the government's ongoing efforts to stimulate growth increasingly backfire.

The inflationary policies implemented by the Japanese government and the Bank of Japan (BoJ) are aimed at generating nominal GDP growth, and the surge in inflation allowed nominal GDP to stay roughly constant. However, wealth is increasingly being sacrificed in a bid to generate growth. In US dollar terms, the economy continues to contract, and is now no larger than it was in 1994.

Record Collapse In Final Domestic Sales
Japan - Real GDP Growth, % chg q-o-q Annualised

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Related sectors of this article: Economy, Economic Activity
Geography: Japan

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