Abenomics Failed: Japanese GDP Back in the Red

Analisi Giornaliera - 15/02/2016

Japanese Economy Deteriorating in Spite of Highly Accommodative Policy


Japan’s gross domestic product declined in the final month of the previous year, moving into negative territory on both a quarterly and annualized basis. Consumer spending in particular is slowing, reflecting recent global turmoil alongside concerns about the outlook amid the move into negative interest rates.

European GDP Stagnates

The European Statistics office reported growth in the economic bloc that remained at sluggish levels. The report announced preliminary gross domestic product values, matching the prior quarter and expectations data of 0.30% for the fourth quarter, while the annualized figure denoted a decline from the previous quarter’s reading of 1.60%, meeting expectations of 1.50%. Germany released quarterly GDP data, showing expansion of 0.30%, mirroring previous quarters and expectations.  On an annual basis, growth tapered to 2.10%, slightly lower when compared to the previous reading. Additionally Italy announced GDP, displaying slowing growth after slipping to a 0.10% increase from the prior 0.20% whereas the annualized figure surprisingly rose to 1.00%. The European Commission has consequently downgraded its growth forecast for the current year from 1.80% to 1.70% while the European Central Bank prepares additional stimulus to safeguard growth and boost inflation.


Japanese GDP Contracts

Japan’s own gross domestic product shrank in the final quarter of 2015, with the Japanese Cabinet Office registering a -0.40% contraction for the period. The value missed the previous reading of 0.30% and expectation of -0.30%. On an annualized basis, growth contracted at a -1.40% pace after having expanded by a revised 1.30% in the previous reading before missing estimates of -1.20%. Private consumption, which accounts for roughly 60.00% of the country’s GDP led the decline, falling by -0.80%. Abenomics has not been effective in boosting spending as wage growth remains elusive and deflation reinforces the idea of waiting for prices to decline further.  The Bank of Japan opted to cut interest rates into negative territory in order to spur inflation and growth during its last policy meeting. If domestic demand starts to reflect faltering global demand, the Central Bank may have to deploy additional easing.


China’s Trade Surplus Soars

The National Bureau of Statistics of China reported yet another trade surplus for China’s economy. January reported a climb of $63.29 billion, higher than December’s $60.09 billion and exceeding estimates of $58.85 billion. Exports plunged by -11.20% for the same time period, but imports more than offset the decline after dropping by an astounding -18.80% year over year, boosting the surplus. The People’s Bank of China’s Yuan depreciation efforts, which started in August, have not yet shown any vigorous boost in exports according to the Customs Office. Although the economy is being held up by consumption and services growth, manufacturing remains stagnant, reflecting the country’s transition from a manufacturer into a service economy. After a weeks’ absence due to the Lunar New Year Holiday led to quieter conditions, the Yuan continued to gain against the US dollar, reaching a price of 6.5013 during the release of the report.


US Retail Sales Rise, But Anemically

Retail Sales in the United States, a strong indication of consumer spending trends, managed to rise for a 3rd consecutive month according to the US Census Bureau. Headline retail figures reportedly increased by 0.20% for the month of January, topping expectations of 0.10% while remaining consistent the previous month’s revised 0.20% reading. Core retail sales excluding automobiles and gasoline, remained at the same levels as the previous month, meeting forecasts of 0.10%. While the benefit netted by consumers from falling fuel prices is still not completely understood, growing wages in parallel to rising jobs opening have seen spending open wallets a little further in recent months. Also helping boost spending were the after holiday sales season despite recent market turmoil. Consumer spending accounts to more than 65.00% of output in the US economy, helping offset factors that have kept growth at below-trend levels of 0.70%.


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