Friday, May 19, 2006

Japanese GDP Report Mostly Strong

Today, the Cabinet Office in Japan published first quarter GDP numbers . It rose 0.5% (Which expressed as in American growth figures, at an annualized rate, is 1.9%) over the fourth quarter 2005 and 3% compared to the first quarter 2005. While this was weaker numbers than in the fourth quarter, both in terms of quarterly change and year over year change, it was still higher than the average forecast of 1.1% annualized quarterly change from economic analysts polled by Bloomberg News.

Moreover, while the numbers are not as impressive as in the fourth quarter, they are still quite good.

The big negative, apart from the slowdown, is the deteriorating terms of trade, which has been a constant theme in recent years as Japan imports all of its oil and almost all other commodities it need, the price of which have risen sharply in recent years. Meanwhile, Japan have a lot of high tech exports, which tend to fall in price. Adjusted for this, GDP growth was only 0.2% (annualized 0.7%) compared to the previous quarter and 1.7% compared to the first quarter of 2005.

On the other hand, Japan have a soaring investment income surplus, which cancels out nearly the entire effect of the deteriorating terms of trade, so the headline GDP numbers actually do reflect the magnitude of real income gains for Japan.

Moreover, as Japan have a shrinking population this makes any given growth number more impressive than in the EU (whose average population growth rate is 0.5%) and even more so America (whose population growth rate is 1%). Per capita growth have in fact been higher in Japan than in both the U.S. and the EU.

Furthermore, Japanese growth is entirely in the private sector. During the latest year, nominal private sector growth have been 3%, while government purchases have been reduced. This is in sharp contrast to America, where government purchase have increased faster than private sector growth. Thus, despite the fact that year over year GDP growth have been faster in America than in Japan (particularly after the likely upward revision of the American number),the amount of disposable money that the Japanese citizen themselves can spend have thus increased a lot faster than that of the average American citizen because of 1) Japan's investment income surplus have soared, while America's have been turned into a deficit 2) Because America's population growth is more than 1% higher than in Japan 3) Because America's government have expanded its influence in the economy, while Japan's have shrinked not only relative to GDP but in absolute numbers.


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