— Capex Shows Slight Downward Revision Vs. Projected Upward Revision
— Public Works Revised Down As Expected, Its Negative Contribution Unrevised
— Q1 GDP Growth Seen Slower Amid Covid Restrictions, Rising Costs, Ukraine
By Max Sato
(MaceNews) – Japan’s economic rebound in the October-December quarter was unexpectedly revised down slightly as consumer spending turned out to be less robust that previously estimated and modest growth in business investment in equipment was revised down, instead of revised up, Cabinet Office data released Wednesday showed.
The gross domestic product grew a real 1.1% on quarter, or at an annualized pace 4.6%, in the fourth quarter, revised down from the initial estimate of 1.3% growth, or 5.4% on an annualized basis. The revised GDP figures came in softer than the Mace News median economist forecast of a 1.4% rise on quarter (forecasts ranged from 1.3% to 1.4%), or an annualized 5.7% increase (5.3% to 6.3%).
Domestic demand propped up the expansion by 0.9 percentage point (revised down from 1.1 point) while net exports added an unrevised 0.2 point. The government lifted Covid restrictions in October and the numbers of infections and deaths remained relatively stable before the Omicron variant wreaked havoc in the New Year. Easing parts supply constraints supported auto production and shipments in October and November.
It was the first GDP growth in two quarters after the economy contracted 0.7%, or an annualized 2.8% (revised down slightly from a 2.7% drop), 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 and energy and other commodities prices continue rising on heightened geopolitical risks rising from the Ukraine war. 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.
In an early indication of a soft start to the current quarter, 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, the index dipped 2.6% in January.
From a year earlier, the economy rose 0.4% in October-December posting the third consecutive rise (revised down from the initial reading of a 0.7% rise), with the pace of growth decelerating from increase of 1.2% in July-September and 7.3% in April-June as some components of the economy had recovered to pre-pandemic levels.
For the whole of 2021, the GDP grew 1.6% on year (revised down from a 1.7% gain), marking the first annual expansion in three years (since +0.6% in 2018) as consumption and net exports picked up, but it only partially recovered from a 4.5% decline in 2020 and a 0.2% drop in 2019.
Growth Led by Consumption, Capex But Both Revised Down
Private consumption, which accounts for about 55% of GDP, rebounded 2.4% on quarter in Q4 (revised down from a preliminary 2.7% rise) following a 1.0% drop (revised down from a 0.9% fall) in Q3. It pushed up total domestic output by 1.3 percentage point (revised down from 1.4 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 was unexpectedly revised down to a 0.3% increase on quarter from a preliminary 0.4% rise after a 2.4% slump in the previous quarter. The median forecast was for a 0.6% rise on quarter, with economist forecasts ranging from 0.5% to 1.4%. Capex still pushed up the Q4 GDP by 0.1 percentage point, revised the initial estimate, after pushing down the Q3 GDP by 0.4 point.
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 modernize the economy.
Net Exports Up As Imports Drop
Net exports of goods and services – exports minus imports – 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 was the second straight positive contribution.
Exports of goods and services rose 0.9% on quarter (revised down from a 1.0% rise) in October-December after falling 0.3% in July-September. Imports fell 0.4% (revised down from a 0.3% dip) after slumping a revised 1.0% 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 As Expected
Private sector inventories provided a negative 0.1 percentage point contribution to the October-December GDP (unrevised from a preliminary 0.1-point fall), after pushing up the July-September GDP by 0.1 point. Some inventories were believed to have been drawn down to meet higher shipments amid reopening demand.
Public works spending slumped 3.8% on quarter in Q4 (initially dropped 3.3%) for a fourth consecutive decline after a 3.0% drop in Q3. It pushed down the GDP by an unrevised 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. The median forecast for public investment was a 3.9% slump on quarter in Q4 (forecasts ranged from -4.0% to -0.4%).
Economic Sentiment Slightly Resilient in February Survey
Japan’s economic confidence is showing some resilience as households and businesses appear to be learning to live with the lingering negative effects of Covid-19 and the global supply bottlenecks, but rising energy and commodities markets and the war in Ukraine are posing downside risks, government data released Tuesday showed.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Feb. 25 to Feb. 28 indicated that sentiment suffered only a minor setback last month and that the outlook picked up slightly.
The Watchers’ sentiment index for Japan’s current economic climate edged down by just 0.2 point to 37.7 in February on a seasonally adjusted basis after plunging 19.6 points to 37.9 in January, when the government resumed public health restrictions in the face of a surge in Covid cases sparked by the Omicron variant. More people are receiving booster shots in Japan and the numbers of infections are gradually falling from a spike in February.
It was the second straight monthly drop in the index that shows the direction of the current economic conditions after it rose 0.7 point to a 16-year high of 57.5 in December (the highest since 57.7 in December 2005). The index remained at the lowest since 34.9 in August, when the government expanded areas under strict restrictions as the Delta variant triggered a spike in Covid cases.
The government put 34 of the 47 prefectures under strict restrictions short of a state emergency in late January and has extended anti-Covid measures for 18 jurisdictions until March 21.
The Watchers’ outlook index, which shows sentiment about the situation two to three months ahead, marked the first rise in five months, up 1.9 points at 44.4 in February after falling 7.8 points to 42.5 in January, the lowest since 36.9 in December 2020.
The Cabinet Office largely maintained its assessment, saying the pickup in economic conditions has a weak tone due to the effects of Covid-19.
“Going forward, while there are hopes for a pickup thanks to the vaccination development, there are concerns about rising costs, which are partly due to the impact of the Ukraine situation,” it said.