— Private Consumption To Remain Key Growth Driver in Revised Data
— Forecasts for Firmer Capex, Weaker Public Works Based on MOF Survey
— Q1 GDP Growth Expected To Slow; BOJ January Consumption Index Slumps
By Max Sato
(MaceNews) – Japan’s economic rebound in the October-December quarter is likely to be revised up slightly as business investment in equipment appears to be firmer than previously estimated, offsetting the effect of downward revisions to public works spending, economists project.
The gross domestic product is forecast to have expanded a real 1.4% on quarter, or at an annualized pace 5.7%, in the fourth quarter, revised up slightly from the initial estimate of 1.3% growth, or 5.4% on an annualized basis, according to the median of forecasts by 10 economists compiled by Mace News. The forecasts ranged from 1.3% to 1.4%, or an annualized 5.3% to 6.3%.
The Cabinet Office will release revised (second preliminary) GDP data for the final quarter of 2021 at 0850 JST Wednesday, March 9 (2350 GMT/1850 EST Tuesday, March 8).
In the preliminary GDP data released last month, domestic demand boosted the expansion by 1.1 percentage point while net exports added 0.2 point. The government lifted Covid restrictions before the Omicron variant wreaked havoc in the New Year and easing parts supply constraints supported auto production and shipments.
It was the first GDP growth in two quarters after the economy contracted 0.7%, or an annualized 2.7%, in July-September, when a Covid resurgence triggered by the Delta variant dampened shopping and dining out while supply chain disruptions hampered business investment.
Looking ahead, Japan’s economic growth is expected to show a slowdown in the January-March quarter as private consumption, the key driver for the Q4 growth, appears to be losing steam. The government resumed Covid restrictions in 34 of the 47 prefectures in late January amid an Omicron-led spike in Covid cases and has extended anti-Covid measures for 18 jurisdictions until March 21.
The BOJ’s supply-side Consumption Activity Index fell 3.0% on the month in January after slipping 0.3% in December and rising 1.8% in November. Compared to a 4.5% rebound in October-December, it dipped 2.6% in January.
Growth Led by Consumption, Capex Seen Revised Up
Private consumption, which accounts for about 55% of GDP, is forecast to have expanded an unrevised 2.7% on quarter in Q4 following a 0.9% drop in Q3. It pushed up total domestic output by a preliminary 1.4 percentage point after trimming 0.5 point in the previous quarter.
Consumers dined out and went traveling more often between the fifth and sixth waves of the pandemic while demand for furniture and electronic appliances arising from the stay-at-home lifestyle waned.
The quarter-on-quarter rise in business investment in equipment is forecast to be revised up to a 0.7% increase on quarter from a 0.4% rise. It would remain the first gain in two quarters after a 2.4% slump in the previous quarter. Forecasts for the rebound ranged from 0.5% to 1.4%. Capex pushed up the Q4 GDP by a preliminary 0.1 point after pushing down the Q3 GDP by 0.4 point.
The demand-side survey by the Ministry of Finance released last week showed that combined capital investment by non-financial Japanese companies rose 4.3% on year in the final quarter of 2021, accelerating from a 1.2% increase in July-September.
On quarter, combined capital outlays (excluding software) gained a seasonally adjusted 3.8%, improving from a 0.7% rise in the previous quarter, the MOF said. In the preliminary GDP data, capex based solely on the supply side rose a nominal 2.9%, slightly slower than a 3.0% rise in the prior quarter.
Japanese firms appear to remain cautious on implementing their solid capital investment plans amid uncertainty over the negative impact of the pandemic. However, there is strong underlying demand for upgrading computer software for digiting and automating operations amid chronic labor shortages for some industries and the government-led drive to modernized the economy.
Net Exports Up As Imports Drop
Net exports of goods and services – exports minus imports – is forecast to have pushed up the total domestic output by an unrevised 0.2 percentage point in Q4 after adding 0.1 percentage point off the Q3 GDP. It would remain the second straight positive contribution.
In the preliminary data, exports of goods and services rose 1.0% on quarter in October-December after falling 0.3% in July-September. Imports fell 0.3% after slumping 0.9% in the previous quarter.
The Bank of Japan’s real export index dipped a seasonally adjusted 1.2% on month in December for the first drop in two months, led by a sharp drop in capital goods shipments and despite a continuing pickup in auto exports. It followed a 9.1% surge in November and a 0.5% fall in October. The index sagged 0.9% in the October-December quarter, the second straight quarterly decline after falling 2.9% in July-September.
Private Inventories Dip, Public Works Drop Revised Down
Private sector inventories are forecast to have provided a negative 0.1 percentage point contribution to the October-December GDP, the same as in the preliminary data, after pushing up the July-September GDP by 0.1 point.
Public works spending is expected to have slumped 3.9% on quarter in Q4, revised down from an initial 3.3% drop, with forecasts ranging from -5.0% to -3.3%. It would remain the fourth consecutive decline after a 3.0% slip in Q3. It pushed down the GDP by a preliminary 0.2 percentage point. The government has focused more on providing financial supports to individuals and businesses hit by the pandemic as well as importing Covid-19 vaccines, instead of improving infrastructure.