World Economy

Japan's GDP grows for 7 straight quarters, outlook remains solid

Key Points
  • Japan's Q3 GDP expands annualized +1.4 percent compared to a forecast of +1.3 percent
  • Q3 GDP +0.3 percent quarter-over-quarter, matching forecast
  • Consumption -0.5 percent compared to a forecast of -0.4 percent
  • Capex +0.2 percent compared to a forecast of +0.3 percent
A robot selling socks in Osaka, Japan.
Everett Rosenfeld | CNBC

Japan's economy shrugged off a consumer spending dip in the third quarter to post the longest period of uninterrupted growth in more than a decade, showing strong fundamentals.

The economy expanded at a 1.4 percent annualized rate in July-September on strong exports and slightly above the median estimate for annualized growth of 1.3 percent. That followed revised annualized growth of 2.6 percent in April-June.

Weakness in consumer spending is expected to be temporary because the economy is near near full employment, which should bolster domestic consumption in the future.

Rising capital expenditure and exports are also expected to keep the economy growing, which should ease some concerns about sluggish inflation.

Gross domestic product (GDP) grew 0.3 percent compared to the previous quarter, which matched the median estimate and followed a 0.6 percent quarter-on-quarter expansion in April-June, Cabinet Office data showed on Wednesday.

The results show that Japan's economy has grown for the seventh straight quarter, the longest period of expansion since an eight-quarter run from April-June 1999 to January-March 2001.

External demand — or exports minus imports — was the biggest reason for expansion, adding 0.5 percent to growth. Negative external demand subtracted a revised 0.2 percentage point from GDP growth in April-June.

Private consumption, which accounts for about two-thirds of GDP, fell 0.5 percent from the previous quarter, more than the median estimate of a 0.3 percent contraction to mark the first decline since October-December 2015.

Capital expenditure rose 0.2 percent in July-September from the previous quarter, less than the median estimate for a 0.3 percent increase.

Japan's government will announce a package of economic measures by year-end aimed at increasing investment in skills training and raising productivity.

This long run of growth should encourage the Bank of Japan to stick with the current monetary easing framework, given its argument that inflationary pressure will percolate through the economy as long as growth is on track.