Dec.09, 2013, 14:00 JST

Japan gov. likely over-estimates its growth

Cabinet Office released its revised GDP estimate for July-September quarter on Dec 9 and the result was a mildly disappointing downward revision from 0.5% quarter on quarter (qoq) before the revision to 0.3% qoq after the revision. However, the real disappointing news lies elsewhere. In addition to the revision for July-September quarter, Cabinet Office made extensive revisions to its past estimates and the results included some shocking news. The growth rate for 2012 was revised down from 2.0% as previously reported to 1.4% after the revision. Fiscal year 2012 were also heavily revised down from 1.2% to 0.7%.

The main cause of the downward revision was in the estimate for public investment and public consumption. Public investment was previously estimated to have expanded by 12.5% year on year (YoY) in 2012. Now, according to Cabinet Office's new estimate, the growth was only 2.8% YoY. Public consumption was also revised down from 2.4% to 1.7%. Apparently, significant portion of the reconstruction projects scheduled for 2012 was either delayed or not executed as planned and Cabinet Office is only now incorporating such information to the data.

The sizable downward revision for 2012 is shocking on its own, but it also makes us question the current growth estimates for 2013. For example, public investment is now estimated to have grown by 6.5% quarter on quarter in July-September. On year on year terms, it is supposed to have grown by 19.0% YoY. In light of what happened to the estimate for 2012, we could very well learn in the near future that it was an overestimation. The circumstances that led to the overestimation of public investment growth for 2012 seems to apply for 2013. Newspapers are full of anecdotes reporting delays in public work projects and shortage of skilled construction workers. 

Perhaps, it is prudent to think that Japan is in fact not growing as much as official statistics says. And if that is the case, the BoJ needs to worry less about the near term overheating in the economy, and should instead maintain its focus on how to add even larger stimulus to the economy.