Japan Avoids Recession – GDP Figures Revised for Q4 of 2023
Japan Avoids Recession in the Fourth Quarter (Q4) of 2023. As the Government revised the GDP figures on Monday (i.e. 11.03.2024), Japan economy avoided technical recession in Q4 of 2023. The revised data showed the upwards change in the fourth quarter.
Despite ascertaining the economic challenges facing by Japan, it has avoided recession; even its stock market is cruising to the highest levels in decades. In this article we are going to dwell into the Revised GDP figures and also to see what are the factors helped Japan to avoid recession. Let’s get started
Japan’s Fourth Quarterly Estimates of GDP (October – December 2023) -The 2nd Preliminary Estimates
According to the Second Preliminary Estimates, released by Economic and Social Research Institute, Cabinet Office, Government of Japan, Japan’s revised Gross domestic Product (GDP) has expanded at an annual rate of 0.4% in Q4 from previous quarter (seasonally adjusted quarterly real growth) in comparison with contraction of 0.4% (–0.4%).
Source: Graph extracted from Nikkei Asia
It is to be remembered that according to its first preliminary estimates Japan has slipped to recession. Consecutive shrinking of two quarters in a row of an economy is termed as technical recession.
Japan’s economy is showing more resilience than initially believed, as numbers suggest, however it also shows that the consumption expenditure is less in real terms due to inflation.
The private consumption, which amounts to 60% of the economy, contracted by 0.3% (i.e. –0.3%) in Q4 of 2023 this is slightly higher than initial estimates (i.e. first) of –0.2%.
Compared to last year from the previous quarter, the Real GDP grew by 0.1% (seasonally adjusted) in Q4 of 2023 at an Annual Rate.
The quarterly nominal growth is revised from 1.2% (initial estimates) to 2.1% in the second preliminary estimates. The private investment also increased from 0.1% in initial estimates to 0.4% in the second preliminary estimates.
However, the Annual real growth rate stood unchanged at 1.9%. Private Capital Expenditure/non-residential investment grew by 2.1% in terms of Annual real growth (i.e. Calendar year). Public investment grew by 2.8% in terms of Annual real growth.
Factors helped Japan to avoid recession
The revised estimates shows that there is an improvement in private capital investment. On quarter-on-quarter basis, Private Capital Expenditure/non-residential investment grew by 2.0% which is better than the initial 0.1% decrease (i.e. first provisional). External Demand contributed to 0.2% to real GDP – remaining unchanged from its first estimates.
The upward revisions of the Q4 of 2023 came as there is a potential of hiking interest rates soon by Japan’s Central Bank.
My Perspective/ Conclusion
Last Thursday (i.e., 7th March), Labour Ministry released data which showed that that Japan saw inflation-adjusted real wages in January is shrinking for the 22nd month in a row (Year-on-Year). The household consumption (year-on-year) in January marked the major decline in 35 months.
This means the slow wage growth still weigh on household consumption. The good news is there is a wage negotiations currently underway between the nations unions and employers.
It is been observed that Japan’s largest trade union is now demanding pay rises of 5.85% this year – this is the first time in 30 years the demand for pay rise is more than 5%.
No doubt, the upward revision gives more positive signal about the economy. It is anticipated that this upward revision will prompt the Bank of Japan to increase interest rates sooner, transitioning away from the unconventional policy of negative interest rates that was implemented ten years ago.
The Japan’s Central Bank have been stating for long time that robust wage growth was a prerequisite for rolling back more than a decade of a radical monetary experiment.
While the GDP data presents a positive outlook, there is a risk of facing an economic downturn in the current or following quarter. This can be attributed to several factors, including the slowdown in China’s economy, weakening yen and a decline in consumer spending.
The monetary policy meeting is scheduled at March 18-19. There are mixed expectations on what will be the outcome of this meeting.
Some expect that there will be interest rate hike for the first time in more than a decade. Some expect that central bank will raise interest rate only next month. It is to be remembered that Japan is stuck on super-easy monetary policy for long time now. We need to wait and watch for the outcome of the meeting.
Japan may have avoided technical recession now.
But, with weak wage growth, weak yen and halting production of cars some of the major car manufacturers are some of the main problem which will add pressure on the GDP in upcoming quarters.
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