Abenomics work

Japan leaves the recession behind by growing 0.9% quarter-on-quarter in the first quarter, 3.5% in annual terms, becoming the advanced economy with the most growth; all boosted by the expansionary policy of Prime Minister Shimzo Abe, which has become known as Abenomics and is based on three pillars: monetary expansion, more public expenditure and structural reforms. The advance in the first quarter was based on sturdy private consumption (which will continue to benefit from fiscal stimuli throughout 2013) and on exports that were up by 16.0% quarter-on-quarter in annualized terms, encouraged by the yen’s depreciation.

Our growth forecast for the whole of 2013 rises from 1.4% to 1.6% as, although the figure was in line with our expectations, this was accompanied by an upward revision of the two previous quarters. Our scenario expects this expansion to continue in 2014 since the effects of the Bank of Japan’s quantitative easing, which will double the monetary base between February 2013 and December 2014, should continue until well into the coming year. Similarly, the yen still has some room to depreciate further, which will continue to benefit exports.

However, if nothing alters the situation, in April 2014 the tax levied on consumption is meant to go from 5% to 10%, a measure that goes against the expansionary logic of Abenomics and which we therefore do not expect to be applied in its entirety.

The data for the second quarter confirm that the recovery is continuing. The trend in consumer confidence, which in April exceeded the average figure for the first quarter, confirms that household spending could maintain a similar growth rate to that of the first quarter. Exports also look like they have continued to thrive, as demonstrated by April’s good figures. Nonetheless, the recovery in domestic demand is also boosting imports.

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