I’m going to be out of the office later this week so thought I should get a post done before I head off. That only left me to decide what to write about. Then Japan GDP came out. Problem solved.
What a truly awful number. Japan’s third quarter GDP contracted at an
annual pace of -1.6%. Remember this was
the quarter activity was meant to bounce back following the June quarter fallout
from the consumption tax increase when GDP contracted at a -7.3% annualised pace. Average market expectations were for an
increase of 2.2%.
The detail of the result didn’t provide any
silver linings. Inventories contracted
more than expected over the quarter but they were always going to be negative
following the big positive contribution in the June quarter.
The real disappointment was the weak increase
in consumer spending of +1.5% (annualised).
That followed a whopping -18.6% contraction in the June quarter. I’ve been at the pessimistic end of Japan
growth all year, especially with respect to how the economy would come through
the tax increase, but even I’m disappointed in that result.
It seems highly likely the second tax hike
scheduled for late next year will now be postponed. That raises another important question beyond
the obvious of the near-term growth outlook: how is Japan to achieve any semblance
of fiscal sustainability?
Raising revenue is proving too damaging to
the economy. Cutting spending would have
the same effect. You know what I’m going
to say next. So far meaningful
structural reform has proven to be too difficult politically. Time to get on with the job.