GDP up 0.9% in September-December quarter, exceeding all expectations except one

February 14, 2008
By Ken Worsley

We’re halfway there.

Back in November, after July-September quarter GDP data was announced to have been a 0.6% increase, we pointed out that Japan’s GDP would need to grow at a 0.9% pace in each of the remaining two quarters in order to hit the government’s target of a 2.1% GDP growth in real terms for fiscal 2007.

This morning, the Cabinet Office announced that Japan’s GDP increased - you guessed it - 0.9% in the October-December quarter. Back in November, almost no one expected to see another quarter with strong GDP figures. The Nikkei even published an article entitled “Strong GDP Data Does Not Warrant Optimism.” I did not read any analysts predicting anything as high as a 0.9% increase.

Does stronger GDP data warrant optimism? We’re almost salivating over breakfast with tomorrow morning’s Nikkei. Of course, we don’t expect anything more than a cautious optimism, if indeed any. After all, these are only preliminary figures.

So what drove the GDP data? According to the Cabinet Office, capital spending rose 2.9 percent from the previous quarter, while consumer spending moved up just a bit, by 0.2 percent. Total domestic demand increased 0.5 percent, despite the fact that housing investment was down 9.1 percent. Exports rose 2.9 percent, with automobile and software exports leading the charge.

Last November, the Nikkei announced that “the fate of Japan’s current expansion will depend more than anything on whether corporate profits will trickle down into household income through fatter paychecks.”

That is not at all how things are playing out, at least not yet. We’re still seeing higher prices and no wage growth. However, please do not mistake disagreement with this one point made by the Nikkei as optimism on our part. We don’t expect to see a 0.9 percent GDP increase in the current quarter. Then again, maybe we should, given that it would bring us right to the government’s target.

The Nikkei also told us this in November:

The country’s economy is in a delicate state, and the policymaking vacuum that has resulted from domestic political turmoil could cause it to enter a serious downturn.

I never bought that one for a second. “Political turmoil?” Ok, there’s no space to get into that here…

So, with GDP results being a surprise and making the next quarter a bit more interesting, will the Bank of Japan pitch in and do something unexpected tomorrow morning?

Filed Under Cabinet Office, Economic Reports, GDP