By Max Sato
- Gradual Economic Recovery Seen After Pullback in Q1
(MaceNews) – Japan’s economy posted the second straight quarter-on-quarter expansion in October-December but at a slightly slower pace than previously reported, as the decline in private-sector inventories turned out to sharper than initially estimated, Cabinet Office data released Tuesday showed.
There was no major change to the growth drivers – firmer global demand, solid consumer spending and a rebound in business investment. However, as seen in the preliminary Q4 GDP data released last month, total domestic output remained below year-earlier levels for the fifth consecutive quarter amid the pandemic-caused slowdown.
Economists on average expect Japan’s gross domestic product 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.
Lower Inventories; No Major Change To Key Growth Drivers
Gross domestic product rose a real 2.8% on quarter, or an annualized 11.7%, in the final quarter of 2020, revised down from the initial estimate of +3.0% q/q, or +12.7% on an annualized basis, due to a sharper-than-expected drop in private-sector inventories.
The revised figures were weaker than the median economist forecast of +3.0%, or +12.6% annualized.
The pace of growth decelerated from an unrevised +5.3%, or an annualized +22.8% (revised slightly from +22.7%) in Q3, which was the fastest growth under the current GDP formula dating to 1994.
Despite two quarters of strong growth, Japan’s GDP still fell 1.4% (revised down from -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 an unrevised 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 credit crisis.
In Q4, domestic demand pushed up total domestic output by 1.8 percentage points (revised down from +2.0 points) after raising Q3 GDP by 2.6 percentage points.
Net exports – exports minus imports – added 1.1 percentage points (revised up slightly from +1.0 point) to Q4 GDP after boosting Q3 GDP by 2.6 percentage points.
Exports of goods and services rose 11.1% on quarter in October-December after gaining 7.4% in July-September, led by higher shipments of automobiles, ships and production equipment. Imports rebounded 4.0% (revised down from +4.1%) after falling 8.2% in the previous quarter.
Private-sector inventories made a negative contribution of a 0.6 percentage point to Q4 GDP (revised down from -0.4 point), marking the second consecutive q/q drop (-0.2 point in Q3), as companies continued paring stockpiles of goods to meet recovering demand.
Private consumption, which accounts for about 55% of GDP, grew an unrevised 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 4.3% (revised down from +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 (unrevised).
Public investment rose 1.5% (revised up from +1.3%) on quarter in Q4, the third straight q/q rise after +0.9% in Q3. It made a positive 0.1 contribution to overall output in Q4 (unrevised).
Pullback Seen in Q1
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 month.
The results of the latest survey will be released on March 16.
Sentiment Picks Up in Feb
The monthly Economy Watchers Survey released Monday by the Cabinet Office indicated that household and business confidence picked up in February on hopes that vaccination will contain the spread of the coronavirus and also due to continued solid consumer spending on takeout food, groceries and other stay-home items.
The survey showed firmer orders related to automobiles and construction machineries, although it also depicted generally depressed conditions for the tourism industry and office rentals.
The Watchers sentiment index for Japan’s current economic climate rebounded 10.1 points to a three-month high of 41.3 in February on a seasonally adjusted basis, but it is still well below 53.0 in October, which was the highest in over six-years. The Watchers outlook index, which shows sentiment about the situation two to three months ahead, also surged 11.4 points to 51.3 in February, hitting the highest since 52.1 in August 2018.
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Contact this reporter: max@macenews.com.
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