By Max Sato
(MaceNews) – Japan’s gross domestic product for the April-June quarter is forecast to post a modest rebound after suffering its first contraction in two quarters in January-March, up 0.6% on quarter, or an annualized 2.3%, as consumption and business investment picked up from the drag of suspended output at Toyota group factories over a safety test scandal. Public works spending is also seen rebounding after a sharp drop.
The expected rebound in the second quarter GDP is unlikely to recover all of the sharp decline of 0.7%, or an annualized 2.9% in the first quarter, as elevated costs are hurting consumer spending.
The median forecast for the Q2 real GDP growth is based on projections by 10 economists compiled by Mace News, which ranged from 0.2% to 0.8% gains on quarter, or 0.6% to 3.0% annualized.
The Cabinet Office will release preliminary GDP data for the second quarter of 2024 at 0850 JST on Thursday, Aug. 15 (2350 GMT/1950 EDT Wednesday Aug. 14).
Domestic demand is expected to add 0.6 percentage point to total domestic output after pulling down the first quarter GDP by 0.4 point while external demand (exports minus imports) is still sluggish, trimming overall growth by 0.1 point after making a negative 0.4-point contribution in the prior quarter.
The BOJ’s index of real export values bounced back 1.6% on the month in June, after falling 1.5% May and dipping 0.1% in April. The index posted a modest 0.5% rise in the April-June quarter, failing to fully recover from a 2.7% decline in the prior quarter. The rebound in the second quarter of 2024 was led by a rebound in three of the four main categories: shipments of automobiles and auto parts, those of information technology goods and capital goods.
Looking ahead, the economy in July-Septmeber is expected to show moderate growth as large firms are raising wages at the fastest pace in 33 years and investing in capacity to cope with labor shortages.
Nominal wages jumped on the year in June while real wages marked their first gain in more than two years, data released earlier this month by the Ministry of Health, Labour and Welfare showed, partly supporting the move by the Bank of Japan to raise the target for the overnight interest rate to 0.25% from a range of zero to 0.1% at the end of July as part of its process to normalize policy.
From a year earlier, the economy is expected to have fallen 1.2% in April-June for the second consecutive drop after slipping 0.7% in January-March.
Consumption Expected to Post 1st Q/Q Rise in 5 Quarters
Private consumption, which accounts for about 55% of GDP, is expected to rise 0.5% on quarter for the first increase in five quarters (forecasts range from 0.3% to 0.7% gains). It would follow a 0.7% drop in the first quarter.
The Bank of Japan’s supply-side consumption activity index rebounded a seasonally adjusted 0.8% on the month in June after falling 0.5% in May and jumping 1.1% in April. The index rose 0.8% in the April-June period after slumping 0.8% in January-March. Figures exclude inbound tourism consumption but include outbound tourism spending.
Capex Expected to Rebound
Business investment in equipment is expected to rebound 0.8% on quarter in April-June (forecasts range from a 0.1% dip to a 1.6% rise) after marking the first drop in two quarters with a 0.4% drop in January-March.
Capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
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 — rose 0.5% on quarter in April-June after slipping 2.0% in January-March, rising 0.9% in October-December and falling 3.2% in July-September 2023.
Private Inventories Seen Down, Public Works Spending Rebound Expected
Private sector inventories are expected to provide a positive 0.1 percentage point contribution to the second quarter GDP (forecasts range from minus 0.2 point to zero), after pushing up the first quarter GDP by 0.3 point.
Public works spending is forecast to post a sharp 4.1% surge, backed by the stimulative effects of the fiscal 2024 budget, after slumping 1.9% in January-March. Forecasts range from 1.2% to 7.8% gains.