–Updates Household Spending and BOJ Consumption Activity Index Information in 9th and 10th Paragraphs
–Pent-Up Demand for Eating Out, Travel Appears to Wane
–Q4 GDP Seen Up but Faces Slowing Global Growth
By Max Sato
The median forecast for the Q3 real GDP growth is based on projections by 10 economists compiled by Mace News, which ranged from a 0.3% drop to a 0.1% rise on quarter, or a 1.2% decline to a 0.4% gain annualized.
The Cabinet Office will release preliminary GDP data for the third quarter of 2023 at 0850 JST on Wednesday, Nov. 15 (2350 GMT/1850 EST Tuesday, Nov. 14).
The expected slump would follow unusually high growth of 1.2% on quarter, or an annualized 4.8% in the second quarter, led by a sharp rebound in net exports amid easing import costs, which mitigated drops in consumption and capital investment. The economy last contracted, down 0.3% (annualized 1.2%), in July-September 2022, when the gradual recovery led by resilient consumption and solid business investment was dented by a surge in imports.
From a year earlier, the economy is expected to have expanded 1.9% in July-September for a 10th consecutive increase, following a 1.6% rise in April-June.
Looking ahead, the economy in October-December is expected to show a modest rebound but still faces the headwinds of slowing global demand and elevated costs for daily necessities.
Domestic Demand Seen Flat; Consumption to Rebound Slightly
Domestic demand is forecast to provide zero growth to the third quarter GDP (forecasts ranged from a negative 0.2 percentage point to a positive 0.4 point), after lowering Q2 growth by 0.6 point. A sharp pullback in public investment and a slight drop in private inventories are expected to offset by modest gains in private consumption and capital investment.
Private consumption, which accounts for about 55% of GDP, is expected post a modest 0.2% rise on quarter in the third quarter (forecasts ranged from a 0.2% drop to a 0.4% gain). It would follow a 0.6% drop in the second quarter, which was the first fall in three quarters. Elevated costs for daily necessities and durable goods weighed on many households.
Demand-side data showed the core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, slipped 0.8% on quarter in the July-September quarter after falling 2.4% in April-June.
The Bank of Japan’s supply-side consumption activity index fell a seasonally adjusted 0.9% on the month in September after edging up 0.1% each in the previous two months. The index rose 0.2% in the July-September period compared to the April-June quarter, when it dipped 0.7%. Figures exclude inbound tourism consumption but include outbound tourism spending.
Capex Expected to Show Small Rise After Sharp Fall in Q2
Business investment in equipment is expected to rise just 0.1% on quarter in July-September (forecasts ranged from a 1.1% drop % to a 1.7% rise) after falling 1.0% in April-June.
The BOJ’s quarterly Tankan business survey for September released last month showed large corporations revised up their plans for investment in equipment slightly for fiscal 2023 that began in April, as largely expected, and smaller firms raised their capex plans much more sharply than forecast.
The latest industrial production data showed that shipments of capital goods excluding transport equipment — a key indicator of business investment in equipment in GDP data — fell 4.2% on quarter in July-September after rebounding 3.8% in April-June and slumping 6.5% in January-March.
Net Exports Seen Dipping After Q2’s Sharp Rebound
Net exports of goods and services — exports minus imports — is forecast to make a negative 0.2 percentage point contribution to the total domestic output (forecasts ranged from a negative 0.5 point to a positive 0.1 point). In the previous quarter, the key measure of external demand boosted the GDP by 1.8 points.
Japanese exports are expected to mark a second straightly quarterly rise in the July-September GDP but at a slower pace than a 3.1% rebound in April-June. Imports are likely to show a modest rise for the first increase in four quarters after dropping 4.3% previously.
The BOJ’s real export index rose 0.8% on quarter exports in the July-September period after a 2.4% rebound in April-June and a 3.3% dip in January-March. The increase was led by a rebound in shipments of capital, intermediate and information technology goods as well as a slower but continued rise in autos and auto parts.
The number of visitors from other countries has picked up in the absence of strict Covid border control, leading to higher spending by foreign visitors, which is counted among exports of services, but exports of goods have been slower to recover, except for faster shipments of automobiles thanks to improving supply chains.
Private Inventories to Trim GDP, Public Works Spending Seen Down
Private sector inventories are expected to make a negative 0.1-point contribution to the third quarter GDP (forecasts ranged from a 0.2-point drop to being flat) after pushing down the second quarter GDP by 0.2 percentage point. Public works spending is forecast to mark its first quarterly drop in six quarters, down 0.6% on the quarter in July-September (forecasts ranged from a 1.4% fall to a 0.2% rise), following a 0.2% rise in April-June. The effects of spending financed by the supplementary budget for fiscal 2022 that ended in March had run its course