What to Make of Japan's GDP Numbers

Japan's out of the woods, but pundits see little reason for long-term optimism.

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Today Japan announced 0.9% GDP growth in the last quarter, joining Germany, France and Hong Kong in re-emergence from recession. Mainstream news coverage has highlighted high Asian growth rates as compared to more modest gains in the West. Specialists of the field, however, tend to have strong views on Japan--David Backus of NYU has called Japan in the 1990s a "Rorschach test for macroeconomists." How do the experts feel about these new numbers? It's hard to get a good sense with half of FT on vacation and other econobloggers busy covering fourteenth-century "birther" movements. Nevertheless, here are two morning reactions that suggest pundits are underwhelmed:

  • Disappointing, wrote Barry Ritholtz, business superblogger of The Big Picture. While the Japanese, French, and German economies' "very minor" expansions are "an improvement from the recent freefall, [...] green shoot expectations have been for a much greater expansion." The conclusion? "Even these positive prints manage to disappoint." Global trade, he added, is still looking pretty bad.
  • Very Disappointing  Not only did Japanese growth fall short of expectations, causing an Asian market drop, Business Insider's Vincent Fernando pointed out, but the GDP growth was due to the GDP deflator: "In nominal terms, Japanese GDP fell 0.7% sequentially, and 5.9% YoY as per Goldman Sachs." Moreover, "if you remove second quarter GDP one-offs such as the front-loading of public works programs and energy efficient auto subsidies, nominal GDP decline would have been even worse." Fernando's bottom line: "While technically, Japan came out of recession, for all intents and purposes underlying demand remained very weak."

None of this should come as any surprise to a few prescient writers over at the New York Times and the Economist, who predicted months ago that Japan's recovery plan had no teeth in the long-term:

  • Not Much Expected  Philip Bowring's April op-ed in the New York Times included a prediction that Japanese government stimulus would be "unlikely to have more than short-term impact."
  • Green Shoots, Sort Of  A May Economist article pointed to potential sources of growth despite Japan's then dismal GDP figures. These "green shoots," though, including the government stimulus, the article predicted might look "particularly impressive in the second quarter" but "will be short-lived."
  • A Lopsided Economy  The Economist also ran a piece last week that discussed Japanese growth: "On August 17th Japan is expected to report its first increase in quarterly GDP in five quarters." But the article wasn't particularly optimistic. The Japanese "aversion to spending," "reluctance to borrow," "highest public-debt-to-GDP ratio in the rich world," and aging population have lead the folks at the Economist to believe that, "in the long term, rebalancing the economy is the best way to ensure higher growth." These numbers, apparently, don't cut it.

On the other hand, things are looking much better than they did in February, when the numbers coming out of Tokyo led to even gloomier analysis. In February, the Economist predicted Japan's economic crisis would last until a general election and until "the political order is overturned, and something more robust is put in its place." With the Japanese general election scheduled for August 30, perhaps the country's economy is in fact ahead of schedule.

This article is from the archive of our partner The Wire.