–People Dining Out, Traveling More Since Restrictions Lifted in Late March
–Capex Seen Making Up for Q1 Drop on Solid Digitization, Greener Energy Demand
–Q3 GDP Growth Sees Headwinds: Domestic Covid Spike, Slower Global Growth
By Max Sato
(MaceNews) – Japan’s gross domestic product for the April-June quarter is forecast by economists to post a 0.7% rebound on quarter, or an annualized 2.9% rise, led by pent-up demand for shopping, dining out, and traveling in light of eased public health restrictions, while China’s two-month lockdown of Shanghai through the end of May exacerbated supply bottlenecks.
The median forecast for Q2 GDP growth is based on projections by 10 economists compiled by Mace News, which ranged from 0.5% to 0.9% on quarter, or 2.0% to 3.6% annualized.
The Cabinet Office will release preliminary GDP data for the second quarter of 2022 at 0850 JST Monday, August 15 (2350 GMT/1950 EDT Sunday, August 14).
The expected expansion would follow a slight 0.1% contraction, or an annualized 0.5% dip, in January-March, when domestic demand showed some resilience despite Covid restrictions, partially offsetting a decline in net exports brought on by surging import costs.
Looking ahead, economic growth in July-September is uncertain as the Omicron BA.5 subvariant has sparked record numbers of new coronavirus infections across the country since late July, and investors are bracing for a possible global slump triggered by aggressive tightening by many central banks aimed at bringing high inflation back to target.
Consumption Seen Up Sharply in Q2
The median forecast for private consumption, which accounts for about 55% of GDP, is for a 1.3% jump on quarter in the second quarter (ranging from +0.7% to +1.6%) following a 0.1% rise in the first quarter and a 2.4% rebound in final quarter of 2021.
More people flocked to restaurants and bars, went to music and sports events and made domestic trips after the government ended two months of strict Covid restrictions in late March. An exceptionally early end to the rainy season in late June and a sudden surge in temperatures to record highs for the month also supported demand for summer clothing and other seasonal goods.
Demand-side data showed real average household spending posted the first year-on-year rise in four months in June, up 3.5%, after falling unexpectedly in May. In the April-June quarter, household spending rose a real 2.0% from the previous three-month period, when it dipped 1.8% amid an Omicron-led spike in Covid cases.
The Bank of Japan’s supply-side Consumption Activity Index was flat on the month in June after rising a real 0.5% on a seasonally adjusted basis in the previous two months, but gained 2.2% on quarter in April-June after slumping 2.6% in the first three months of 2022. Figures exclude inbound tourism consumption but include outbound tourism spending.
Capex Seen Rebounding
Business investment in equipment is expected to show a 0.9% rebound in April-June (forecast ranged from +0.1% to +1.3%) after slipping 0.7% in January-March and posting a modest 0.1% rise in October-December.
There remains solid demand for upgrading computer software for digitizing and automating operations as well as a move toward reducing emissions amid some signs of easing in supply constraints and elevated producer costs.
Shipments of capital goods excluding transport equipment – a key indicator of domestic demand in GDP data – rose 0.9% in the second quarter, marking the first quarter-on-quarter rise in four quarters after being flat in the first quarter.
External Demand Seen Nearly Flat
The median forecast for net exports of goods and services – exports minus imports – is for a slight positive 0.1 percentage point contribution to total domestic output (ranging from -0.3 to +0.6 percentage point) in the second quarter. In the previous quarter, the key measure of external demand pushed down the GDP by 0.4 percentage point for the first negative contribution in three quarters.
Some economists expect Japanese exports to show a third straight quarterly gain in April-June while others forecast a drop. The pace of imports is seen slowing after the government had bought more Covid-19 vaccines from the US and Europe in the previous quarters.
The Bank of Japan’s real export index fell a seasonally adjusted 3.2% on quarter in April-June after rising 2.3% in January-March and slipping 0.1% in October-December. A rebound in capital goods shipments was more than offset by drops in the shipments of auto and auto parts as well as computers, semiconductors and other information technology goods.
Private Inventories Seen Down, Public Works Up
In other details, private sector inventories are expected to have provided a negative 0.3 percentage point contribution to the Q2 GDP (forecasts ranged from -0.5 to -0.2 point), after pushing up Q1 GDP by 0.5 point. Companies used built-up inventories to meet shipment needs.
On the upside, public works spending is expected to mark the first quarter-on-quarter rise in six quarters as the government implemented projects included in the supplementary budget for the fiscal 2021 budget. The median forecast for public investment is a 2.4% rebound on quarter in the second quarter (forecasts ranged from +1.3% to +5.2%) after a 3.9% drop in the first quarter.