■ The economy failed to accelerate in Q4. GDP increased by only 0.3% in Q4, the same as in the previous quarter, against 0.7% expected by the market.
■ Exports rebounded by only 0.4% in Q4, after a 0.7% decline in the previous quarter, whereas world trade expanded by around 2%. This is rather disappointing, also given the sharp depreciation of the yen. In Q4, the yen had lost 24% of its value vis-à-vis the US dollar compared to the previous year. The latest Tankan survey (September) indicates that exporters may be capacity constrained. This is also signalled by the Economy Watchers Survey. Exporters have used the depreciation to improve profit margins. Export prices (in yen) were 10% higher compared to last year. Moreover, exports to China were hampered by the continuing political problems.
■ The economy has been mainly supported by domestic demand. Private consumption rose by 0.5% in Q4, as households have been advancing their purchases ahead of the 3-point VAT hike in April 2014. Compared to Q4 2012, private consumption was 2.4% higher, despite substantial losses in purchasing power. The VAT hike also stimulated residential investment in the second half of 2013.
■ In Q4, public investment increased further, stimulated by the implementation of the supplementary budget worth JPY 10 trillion (or 2% of GDP) adopted in January 2013. In 2013, public investment increased by 11.4%, thus contributing 0.5 percentage points to GDP growth.
■ Growth in private non-residential investment accelerated to only 1.3%. Companies have been reluctant to expand their capacity for two reasons. First, they expect that the current boom in consumer demand is only temporary and fear that demand will sharply drop after the VAT hike in 2014. Second, enterprises are increasingly offshoring their activities to other Asian countries to profit from lower wage costs and more dynamic markets. In 2013 as a whole, non-residential investment contracted by 1.4%.
BY Raymond VAN DER PUTTEN
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