Japan GDP revised heavily downward

Official estimates of Japan’s growth between July and September were revised down heavily on Wednesday, suggesting the country’s recovery is more fragile than previously thought.

Growth on the previous quarter was revised down from 1.2 per cent to 0.3 per cent. At an annualised rate the revision was from 4.8 per cent to 1.3 per cent.

The growth revision highlights the risk of a “double dip” recession – with the economy turning down again by the second quarter of next year – that prompted Japan’s government to announce a Y7,200bn ($81bn) fiscal stimulus package on Tuesday.

A recovery in business investment reported in the first release proved an illusion. The figure was revised down from a 1.6 per cent rise on the previous quarter to a 2.8 per cent fall, accounting for two-thirds of the total revision.

The second-biggest revision was to private sector inventories, now judged to have contributed 0.1 per cent to quarter-on-quarter growth, rather than 0.4 per cent.

While the revision undermined the idea that Japanese businesses have regained confidence and are preparing to expand output, private consumption was a bright spot, with growth revised up from 0.7 per cent to 0.9 per cent quarter on quarter.

Fiscal stimulus – such as incentives to scrap old cars – has been a prime cause of increased consumer spending, and economists have feared it would drop back as stimulus measures expired at the end of the fiscal year in March.

News that the economy was even more reliant on stimulus-driven growth in consumption than previously thought supports the government’s decision to launch a new fiscal package.

The package includes Y3,500bn in transfers to local governments, Y1,200bn in support for small businesses, and assistance for various environmental, employment and housing measures.

Of the the Y7,200bn, however, Y2,700bn represents funds saved from a previous fiscal stimulus announced by the previous government, so there is only Y4,500bn in new money.

Capital Economics said the stimulus “will not transform the prospects for the economy” but that “the measures appear to be well-aimed to get the biggest bang for the yen”.

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