Japanese Growth Revisited

This article on the recent downward revision of Japanese growth is a bit old now, but it does contain a few useful points:

Japan's economy grew at a far weaker pace in the third quarter than previously reported due to downward revisions in consumer spending and capital investment, the government said Friday, raising concerns about the recovery's strength. Gross domestic product expanded at an annual rate of 0.8 percent, well below the preliminary 2.0 percent announced in November, but marked the seventh straight quarter of expansion, the government said.


Since exports remained relatively strong, the big changes were a revision downwards of consumption and investment:

Domestic demand — which includes consumer spending, government spending and private investment — had contracted 0.2 percent from the previous quarter instead of inching up 0.1 percent, as previously thought.

Separately government data viewed as a key indicator for corporate investment, released Friday, showed core machinery orders rose a weaker-than-expected 2.8 percent in October from the previous month. That reversed September's 7.4 percent plunge but missed the forecasts by economists surveyed by Dow Jones Newswires for 5.7 percent growth.

The key to the picture would seem to be consumption, since the weak investment most likely is a by-product of an equally weak estimate of the likely direction of internal consumption:



Economy Minister Hiroko Ota blamed the downward
GDP revision mostly on weak consumer spending, but assured the public that Japan's economic revival was on track.

"The lower GDP was mainly caused by weak consumption," she said. "I don't have any concerns that the economy will fall into a downward trend. Nor do I see any signs of its entering a lull."

Although Japan's economy has been emerging from decade-long slowdown that ran through much of the 1990s, recent signs have underlined the risk that growth may be overly reliant on exports. Some analysts say the revival is dependent on U.S. and other overseas economies holding up.

Analysts also say paychecks and other realities that trickle down to workers don't reflect upbeat GDP numbers, as companies cut costs to keep up with global competition and the Japanese population ages and increasingly shifts to lower-paying jobs.

This weak consumption in Japan meme now seems to be catching on, as this article on the world economic outlook from AP this weekend seems to have already internalised the idea that Japanese consumption is the current big enigma:

Japan, Asia's largest economy, is steadily recovering from a decade of stagnation. However, consumer spending appears to be weakening, leaving the economy vulnerable to slowing demand for exports, its traditional source of growth.

Anyone interested in a fuller theoretical explanation as to why consumption is holding so weak could do worse than this post of mine, or this post from Claus Vistesen.