The Recovery Sputters | Trends in Japan

THE RECOVERY SPUTTERS:
Second Quarter GDP Contracts by 2.9% Annual Rate

SEPTEMBER 25, 1996

Japan's gross domestic product in the April-June quarter of 1996 fell by 0.7% in real terms over the previous quarter, or an annualized rate of minus 2.9%, according to preliminary figures released by the Economic Planning Agency. The decline comes on the heels of a robust 12.2% annual growth registered in the first quarter of 1996. Major factors include the reaction to the "leap year effect" of the January-March quarter and the drop in personal spending as consumers confronted employment uncertainties and small income growth.

The economic growth rate for the first six months of 1996 was still a buoyant 6.4% annual rate. With capital investment beginning to firm up, moreover, the EPA reported that the moderate recovery trend was still continuing.

The decline in quarterly GDP figures was the first since the last three months of 1994. Domestic demand accounted for 0.5 points of the 0.7% second-quarter GDP dip, while external demand (exports minus imports) contributed the remaining 0.2 points.

The biggest element in the slowdown was lackluster personal consumption, which declined by 1.3% from the previous quarter; first-quarter spending was up 2.4% from the previous three months thanks partly to the extra spending day in February. Spending was particularly slugging on meats, automobiles, and clothing. Personal consumption dragged GDP down by an equivalent of 0.8 points.

Economic Growth Rates (%)
1995 1996

FY 1995 III IV I II

Real GDP 2.2 0.6 1.2 2.9 -0.7

Personal consumption 2.7 1.2 0.6 2.4 -1.3

Private housing investment -6.7 -5.7 7.2 8.4 3.7
Private plant and
equipment investment 5.0 0.6 2.3 1.0 1.6

Increase in private inventories -- 75.0 40.9 6.2 -40.4

Government consumption 1.6 0.2 -0.4 3.3 -1.3

Government investment 10.0 5.8 6.9 8.7 0.6

Increase in public inventories -47.7 -37.3 -48.8 1235.6 -66.5

Net exports of goods and services -52.0 -32.1 -50.7 -59.7 -85.4

Exports of goods and services 4.2 -1.6 -1.3 -1.8 1.0

Imports of goods and services 14.5 3.0 6.4 0.9 2.6

**Economic Growth Rates** (%)
		1995	1996
	FY 1995	III	IV	I	II
Real GDP	2.2	0.6	1.2	2.9	-0.7
Personal consumption	2.7	1.2	0.6	2.4	-1.3
Private housing investment	-6.7	-5.7	7.2	8.4	3.7
Private plant and equipment investment	5.0	0.6	2.3	1.0	1.6
Increase in private inventories	--	75.0	40.9	6.2	-40.4
Government consumption	1.6	0.2	-0.4	3.3	-1.3
Government investment	10.0	5.8	6.9	8.7	0.6
Increase in public inventories	-47.7	-37.3	-48.8	1235.6	-66.5
Net exports of goods and services	-52.0	-32.1	-50.7	-59.7	-85.4
Exports of goods and services	4.2	-1.6	-1.3	-1.8	1.0
Imports of goods and services	14.5	3.0	6.4	0.9	2.6

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