LSR predicts poor fourth quarter for Spain and Japan

Spain and Japan will suffer significant GDP contractions in the fourth quarter, despite flat or positive results in the third, according to Lombard Street Research (LSR).

As the woes in the eurozone and Japan continue, the research firm predicts the two countries to suffer as their governments wind down stimulus measures, despite 0.9% and 0% growth in the third quarter respectively.

LSR was particularly scornful of Spain’s official GDP data, saying the figures fly in the face of “the recessionary reality” and may prove inaccurate.

LSR adds that other available official data for the third quarter suggest output and demand dropped markedly in the quarter and will fall further in the final quarter.

Spain’s national statistics office, the INE, will publish revised numbers for the third quarter on November 17. However Jamie Dannhauser, an economist at LSR, does not expect a credible revision to the growth figure.

Dannhauser says the INE’s industrial output data suggests the industrial sector knocked 0.3% off GDP. This, he adds, would need to be offset by combined growth in the construction and services sectors of 0.4% during the quarter to account for the official data. (article continues below)

However, data from Eurostat and INE suggest both sectors took a hit in the quarter, making the official stagnant growth claim look “wholly inconsistent” with the available information, the analyst says.

Spain’s economy crawled out of recession in the first half of the year, but consumer demand was expected to suffer in the third quarter, owing to July’s VAT hike.

While not expressing scepticism about Japan’s official GDP figures, LSR does expect the Japanese economy to contract in the fourth quarter on account of weak export demand and lower consumer spending.

The third quarter beat forecasts after a temporary hike in consumer spending as the Japanese rushed to take advantage of government stimulus measures before their imminent withdrawal.

After the yen’s recent series of 15-year highs against the dollar, a number of economists think export demand will fall further and will not be offset by domestic demand in the fourth quarter.

Yoshimasa Maruyama, an economist at Itochu Corporation, expects a 2% year-on-year drop in the final quarter.

However, a poor fourth quarter showing would not necessarily spell doom for the Japanese economy in the medium term.

Even if the Japanese economy falls 0.9% quarter-on-quarter for the fourth quarter and first quarter of 2011, the economy would have grown 2.1% for the 2010 fiscal year, according to the Japanese Cabinet Office.