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Home Publications Blogs Beat the Press Japan's First Quarter Growth is Relevant to Its Second Quarter Contraction

Japan's First Quarter Growth is Relevant to Its Second Quarter Contraction

Wednesday, 13 August 2014 04:13

The NYT ran an AP article on the contraction in Japan's economy in the 2nd quarter of 2014. The article noted the 6.8 percent annual rate of contraction and told readers that this posed a real problem for Abenomics.

While this rate of decline is undoubtedly a cause of concern, it would have been worth mentioning that its economy grew at a 6.7 percent annual rate in the first quarter. The big factor in this seesaw was a sharp rise in the consumption tax that went into effect in April. This tax increase led many people to pull major purchases forward. As a result, they bought cars, appliances, and other expensive items in the first quarter that they would have otherwise bought in the second quarter.

The modest net contraction over the two quarters taken together should still be cause for concern, but it is a very different world than one in which an economy is sinking at close to a 7.0 percent annual rate.

Comments (3)Add Comment
written by djb, August 13, 2014 7:19
consumption tax, aka sales tax, i assume, would count as a regressive tax, with poor paying a greater percentage of their income on this tax increase, than the rich'

not sure how this is would be a stimulus anyway
written by skeptonomist, August 13, 2014 2:04
It's probably a mistake to try to judge Abenomics as a whole. It's a mixed bag, with QE, fiscal expansion, reduction of the value of the yen, and weirdly the large sales tax increase. The tax increase makes it very hard to evaluate the other things (even if that were possible anyway).
Inquirng minds
written by Ellis, August 14, 2014 12:37
How much of a "cause for concern" is an economy that has been stagnating for decades? And what is the solution? Print more money? Done. More government debt? That's been tried also.

So, what's wrong? Inquiring minds want to know.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.