Pick up in net exports supports Japanese Q3 GDP growth
The preliminary estimate for Japan third quarter real GDP growth came in at 1.4% quarter-on-quarter (q/q) annualised.
This is above trend growth, which is thought to be around 1% and the first positive seven quarter run for real GDP growth in 16 years, although it was slightly weaker quarter-on quarter than expected.
Improvement in external demand
In contrast to growth in the second quarter, growth in the third quarter was driven by a pick up in external demand, which offset a slowdown in domestic demand.
Net exports contributed two percentage points (pp) to growth, an upswing from a negative contribution to growth in the second quarter. Inventory investment also contributed strongly to growth as firms build up their stock.
Temporary drop in private consumption
Private consumption fell 1.8% q/q annualised and, in turn, was a 1pp drag on real GDP growth. This was in part due to strong consumption last quarter (at 2.8% annualised) and also weather related.
We expect the weakness in consumption to be temporary as total income continues to pick up and household sentiment remains high.
Growth in capital expenditure was not enough to offset the 9.7% q/q fall in public investment, following the significant 25.3% q/q pick up in the last quarter.
Meanwhile, the GDP deflator, a measure of inflation, turned positive this quarter to 0.1% y/y from -0.4% in the second quarter.