By Chikafumi Hodo
TOKYO (MaceNews) – Japan’s real gross domestic product is projected to post a second consecutive quarter of growth in January-March, supported by firmer exports despite ongoing U.S. tariffs, while solid public investment, modest gains in private consumption and steady capital expenditure likely also contributed to growth.
The economy is expected to expand in the three months through March, with consumer spending continuing to improve following the government’s abolition of the provisional gasoline tax rate and fading base effects from food prices, developments that helped lift real wages.
Still, the overall pace of growth likely remained modest as consumer sentiment deteriorated amid escalating geopolitical tensions in the Middle East following the U.S.-Israeli attacks on Iran in February.
Preliminary first-quarter GDP data due from the Cabinet Office at 8:50 a.m. JST on Tuesday, May 19 (2350 GMT Monday, May 18), is forecast to show the economy expanded 0.5% from the previous quarter, or an annualized 1.7%, after rising 0.3%, or an annualized 1.3%, in October-December, marking a second straight quarter of growth.
Robust Public Works, Steady Consumption
Public investment is forecast to rise 1.4% from the previous quarter after falling 0.5% in October-December, marking the first increase in three quarters and suggesting a strong pick-up in public works spending.
Private consumption, which accounts for about 55% of domestic output, is expected to extend its growth streak to eight consecutive quarters in January-March, rising 0.2% after a 0.3% increase in October-December. Inflation slowed during the quarter, partly because of easing food price gains and the government’s expanded electricity and gas subsidies, helping real wages return to positive territory. The resulting improvement in purchasing power likely supported consumer spending.
In January-March, real average household spending among households with two or more people rebounded 0.7% on the quarter in the consumption trend index (CTI) after plunging 3.2% in October-December and rising 1.3% previously. The CTI slipped 1.3% on the month in March after rising 0.9% in February and 0.3% in January, suggesting private consumption likely remained sluggish but resilient in the preliminary first-quarter GDP data.
Exports Rise Despite U.S. Tariffs, Capex Firms
Exports improved despite the continued impact of U.S. tariffs on Japan’s auto-related industries, while deteriorating diplomatic relations between Tokyo and Beijing appeared to weigh on inbound tourism from China. Ministry of Finance data showed exports to the United States recovered during the quarter, while shipments to other Asian economies and Europe also remained firm. Overall, exports appeared to strengthen modestly on trend.
Supporting growth further, Ministry of Economy, Trade and Industry data showed capital goods shipments excluding transport equipment rose a solid 1.8% on the quarter in January-March after rebounding 1.6% in October-December following a 1.2% decline in July-September, suggesting capital expenditure remained firm in the first-quarter GDP data.
Capital investment is projected to rise 0.3% on the quarter following a 1.3% increase in October-December. Strong corporate profits, along with digitalization, labor-saving investment, research and development spending, and investment related to artificial intelligence continued to support business spending, suggesting capital expenditure maintained a moderate upward trend overall.
Consensus forecasts for key components are quarter-over-quarter percentage changes except for domestic demand, private inventories and net exports, which are measured by their contribution to GDP growth in percentage points. Figures for the previous quarter are shown in parentheses.
GDP q/q: +0.5% (+0.3%); 2nd straight rise
GDP annualized: +1.7% (+1.3%); 2nd straight rise
GDP y/y: +0.8% (+0.4%); 7th straight rise
Domestic demand: +0.3 point (+0.3 point); 2nd straight rise
Private consumption: +0.2% (+0.3%); 8th straight rise
Business investment: +0.3% (+1.3%); 2nd straight rise
Public investment: +1.4% (-0.5%); 1st rise in 3 qtrs
Private inventories: +0.0 point (-0.3 point); flat after 2nd straight drop
Net exports (external demand): 0.2 point (-0.0 point), 1st rise after flat