–Consumption Backed by Government Tourism Support Program
–Business Investment Seen Posting 2nd Straight Quarterly Drop as Firms Become Cautious
–Net Exports Forecast to Show Decline Amid Slowing Global Demand
–Q2 GDP Growth Seen Led by Consumption but Exports Weak
By Max Sato
(MaceNews) – Japan’s gross domestic product for the January-March quarter is forecast by economists to post a modest 0.2% rebound on quarter, or an annualized 0.6% rise, as exports and business investment lost some steam amid slowing global growth while widely eased Covid public health rules mitigated the impact of elevated costs for daily necessities on consumer spending.
The median forecast for Q1 real GDP growth is based on projections by 10 economists compiled by Mace News, which ranged from a 0.4% fall to a 0.4% rise on quarter (only one economist forecast contraction), or a 1.5% drop to a 1.7% gain annualized.
The Cabinet Office will release preliminary GDP data for the first quarter of 2023 at 0850 JST Wednesday, May 17 (2350 GMT/1950 EDT Tuesday, May 16).
The expected slight rebound in the Q1 GDP would follow zero growth on quarter, or an annualized 0.1% increase, in the final quarter of 2022, when a large drop in private-sector inventories pushed down domestic demand. Eased Covid rules and travel subsidies supported consumption in October-December while net exports rose after a one-time surge in service imports caused an unexpected contraction in July-September.
Looking ahead, economic growth in April-June is expected to be led by solid consumer spending as the economy continues to reopen, but remain lackluster as Japan continues to face slower global demand and high costs, although wage hikes for fiscal 2023 ending March next year are estimated to be higher than in the previous year.
Consumption Resilient on Reopening Economy but Slow
The median forecast for private consumption, which accounts for about 55% of GDP, is for a modest 0.3% increase on quarter in the first quarter (forecasts ranged from 0.1% to 0.7% gains) for a second straight clear increase following a 0.3% rise in the fourth quarter and no growth with a slightly positive bias (+0.0%) in the third quarter.
Domestic demand is supported by consumer spending as the economy continues to reopen, but the purchasing power of many households has been hurt by rising costs for daily necessities and falling real wages.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from March 25 to March 31 and released April 10, indicated that confidence continued picking up in March on eased Covid public health rules, although some survey respondents noted rising food prices are limiting spending on clothing and elevated materials costs are squeezing corporate profits.
Demand-side data showed the core measure of real average household spending (excluding housing, vehicles and remittance), a key indicator used in GDP calculation, fell 0.4% on quarter in January-March after rising 0.7% in October-December, falling 0.7% in July-September and rebounding 1.7% in April-June from a 1.7% slump in January-March 2022.
The Bank of Japan’s supply-side Consumption Activity Index slumped a seasonally adjusted 2.1% on the month in March after rising 1.1% in February and growing 1.9% in January. The index rebounded 1.0% in the January-March quarter compared to October-December, when it dipped 0.1%. Figures exclude inbound tourism consumption but include outbound tourism spending.
Capex to Post 2nd Straight Drop
Business investment in equipment is expected to post its second straight drop in January-March, down 0.4% on quarter (forecasts ranged from a 1.2% drop % to a 1.0% rise), after falling 0.5% in October-December and rising 1.5% in July-September. Firms appear to be cautious about implementing their plans, although capital investment is generally supported by demand for automation amid labor shortages in some sectors as well as government-led digital transformation and emission control.
The Bank of Japan’s quarterly Tankan business survey for March released last week showed large firms have solid plans for investment in equipment for fiscal 2023 starting on April 1 while smaller firms projected a rise at the initial stage, which is unusually bullish. Some plans may be carried over from fiscal 2022.
Shipments of capital goods excluding transport equipment – a key indicator of business investment in equipment in GDP data – slumped 6.4% on quarter in January-March after falling 6.9% on quarter in October-December after surging 13.1% in July-September and rising 1.3% in April-June.
Net Exports Seen Down Amid Slow Global Demand
The median forecast for net exports of goods and services – exports minus imports – is for a negative 0.2 percentage point contribution to total domestic output (forecasts ranged from a 0.5-point drop to a 0.1-point gain) in the first quarter. In the previous quarter, the key measure of external demand raised the GDP by 0.4 point after trimming it by 0.6 point in July September.
Economists expect Japanese exports to post their first drop in six quarters in the January-March GDP data while forecasting the second consecutive fall in imports after a surge in July-September led by service payments.
The number of visitors from other countries has continued to pick up since the government eased its Covid border control rules in October, leading to higher spending by foreign visitors, which is counted among exports, but shipments of goods to other economies have been sluggish due to a global slowdown.
The Bank of Japan’s real export index slumped a seasonally adjusted 3.3% on quarter in January-March after falling 0.4% in October-December and rising 1.4% in July-September. The export volume index calculated by the Cabinet Office plunged a seasonally adjusted 4.2% on quarter in the first quarter of 2023, following a 3.0% drop in the previous quarter.
Japanese export values rose on the year at a slower pace in March amid softer global demand even though trade flows appeared to have returned to normal after January’s lunar new year holiday shutdowns in some parts of Asia. The pace of imports also decelerated, leading to a narrower trade deficit for the second straight month after hitting a record shortfall in January.
Private Inventories Slight Positive, Public Works Spending Seen Up
Private sector inventories are expected to have a slightly positive 0.1-point contribution to the Q1 GDP (forecasts ranged from a 0.1-point drop to a 0.2-point rise) after pushing down the Q4 GDP by 0.5 percentage point.