By Max Sato
(MaceNews) – Japan’s economy posted the second straight quarter-on-quarter expansion in October-December on firmer global demand, solid consumer spending and a rebound in business investment, but total domestic output remained below year-earlier levels for the fifth consecutive quarter amid the pandemic-caused slowdown, Cabinet Office data released Monday showed.
Economists on average expect Japan’s gross domestic output to show a gradual pickup this year and return to the pre-pandemic level sometime in 2022 on the assumption that global demand for Japanese cars and production machinery will remain healthy and households will continue spending on groceries, takeout food, electric appliances and furniture in COVID-19 stay-home lifestyles.
CONSUMPTION, EXPORTS KEY DRIVERS; CAPEX REBOUNDS
Real GDP rose 3.0% on quarter, or an annualized 12.7%, in the final quarter of 2020, with the pace of growth decelerating from an unrevised +5.3%, or an annualized +22.7% (revised slightly from +22.9%) in Q3, which was the fastest growth under the current GDP formula dating to 1994.
Q4 GDP came in stronger than the median economist forecast of +2.3%, or an annualized pace of +9.4%.
Despite two quarters of strong growth, Japan’s GDP still fell 1.2% from a year earlier in October-December, posting the fifth straight quarter of year-on-year decline, but the pace of contraction decelerated from -5.8% in July-September and -10.3% in April-June.
At the height of the pandemic slump in the April-June quarter, Japan’s GDP marked the deepest contraction on record, down 8.3% q/q, or an annualized 29.3%.
For the whole of 2020, GDP contracted 4.8% on year after growing 0.3% in 2019. It was the first annual drop since 2009, when GDP plunged 5.7% in the wake of the global financial crisis.
In Q4, domestic demand pushed up total domestic output by 2.0 percentage points after raising Q3 GDP by 2.6 percentage points.
Net exports – exports minus imports – added 1.0 percentage point to Q4 GDP
after boosting Q3 GDP by a revised 2.6 percentage points.
Exports of goods and services rose 11.1% on quarter in October-December after gaining a revised 7.4% in July-September, led by higher shipments of automobiles, ships and production equipment. Imports rebounded 4.1% after falling a revised 8.2% in the previous quarter.
Private consumption, which accounts for about 55% of GDP, grew 2.2% on quarter in Q4, the second straight q/q growth, after surging 5.1% in Q3. It made a positive contribution of 1.2 percentage points to the fourth-quarter GDP.
Business investment showed a delayed pickup compared to other key segments of the economy, up 4.5% on quarter in Q4, the first q/q increase in three quarters after slipping 2.4% in Q3. It made a positive 0.7 percentage point contribution to the total output.
Private-sector inventories made a negative contribution of a 0.4 percentage point to Q4 GDP, the second consecutive q/q drop (-0.2 point in Q3), as companies continued paring stockpiles of goods to meet recovering demand.
Public investment rose 1.3% on quarter in Q4, the third straight q/q rise after a revised +0.9% in Q3. It made a positive 0.1 contribution to overall output in Q4.
SHARP GDP SWINGS SEEN IN FIRST-HALF 2021
Japan’s economy is expected to stay on a bumpy road during the pandemic, showing sharp fluctuations quarter to quarter.
Economists on average forecast that the domestic economy would contract 5.47% at an annualized pace in the first quarter of 2021 in reaction to the strong growth in the previous two quarters, but they also predicted it would rebound 5.76% in April-June, according to the latest monthly ESP Survey of 36 forecasters by the Japan Center for Economic Research released last week.
The government has extended its emergency measures by one month until early March for Tokyo and nine other jurisdictions (one excluded from the original group of 11), urging bars and restaurants to close by 8 p.m., and asking people to stay home as much as possible and limit shopping to essential items. Companies have been told to help reduce the use of public transportation by allowing most of their employees to work from home.
The monthly Economy Watchers Survey released by the Cabinet Office last week showed a mixed picture of how people in various industries were feeling about the new reality of the pandemic in terms of consumption and business patterns. That was gloomier overall on the current situation but largely hopeful for a pickup in the months ahead.
The Watchers sentiment index for Japan’s current economic climate slumped 3.1 points to an eight-month low of 31.2 in January on a seasonally adjusted basis, marking the third straight month of decline amid restricted economic activity during the pandemic and slipping from an over six-year high of 53.0 hit in October, when optimism over containing the virus had emerged.
In contrast, the Watchers outlook index, which shows sentiment about the situation two to three months ahead, posted the second consecutive monthly gain, up 3.8 points at 39.9 in January (still well below October’s 47.7), on hopes that social distancing and vaccination would eventually lead to fewer coronavirus cases and a gradual easing of the restrictions on busines hours and traveling.