By Max Sato
(MaceNews) – Business investment in equipment by many Japanese companies stayed below year-earlier levels in the October-December quarter, but the pace of decline decelerated as firms gradually resumed spending on factories and systems during the pandemic, a quarterly survey by the Ministry of Finance released Tuesday showed.
This and other pieces of data will be used by the Cabinet Office to revise its estimate for private-sector capital investment in revised (second preliminary) gross domestic product data for the final quarter of 2021, due in a week.
The revision is expected to be small, economists said.
The key points from the Financial Statements Statistics of Corporations by Industry:
* Combined capital investment by non-financial Japanese companies slipped 4.8%
on year in October-December, the third straight quarter of decrease after falling 10.6% in July-September.
* The government has said carmakers and manufacturers of production machinery are increasing or upgrading their capacity while telecom carriers and information service providers are changing their systems and networks more in tune with the fifth-generation technology standard.
* Non-financial capital outlays (excluding software), a key indicator for GDP revisions, posted the fifth consecutive decline, down 6.1% on year, after slumping 11.6% in Q3.
* The slower decline in capex on the demand side is expected to have little impact on private-sector non-residential investment in Q4 GDP, which rebounded a preliminary 4.5% on quarter, or an annualized 19.4%, pushing up the gross domestic product by 0.7 percentage point.
*Japan’s economy for the October-December quarter expanded 3.0% on quarter, or an annualized 12.7%, led by consumer spending and exports as well as a delayed pickup in capex, Cabinet Office data released last month showed. It followed a 5.3% surge (annualized +22.7%) in Q3, which was the fastest growth under the current GDP formula dating to 1994.
* The amount of business investment reported in the MOF survey rose 2.6% to Y11.08 trillion in October-December from Y10.80 trillion in July-September. It is slightly firmer than the 1.7% gain on quarter in nominal demand-side capex estimated by the Cabinet Office based on nominal supply-side capex figures that were available in the preliminary GDP data released on Feb. 15.
* “The MOF data alone points to a slight upward revision to capex, but when you adjust the gap between different sample periods in the GDP data, it will cause a slight downward revision. The net effect is no change to the preliminary figure,” said Sumitomo Mitsui DS Asset Management chief economist Akiyoshi Takumori. “I expect GDP to revised up only slightly to +3.1% on quarter, or an annualized +12.8% due to an upward revision to public investment and no change to (private-sector) inventories.”
* The MOF survey based on the demand side is the key to calculating revisions to Q3 GDP due out on March 9. Capex in preliminary GDP, which is based solely on supply side data.
* The MOF data showed business investment in the manufacturing sector marked the fifth consecutive year-on-year drop, down 8.5% on year in Q4 after slipping 10.3% in Q3, while that in the non-manufacturing sector dropped 2.6%, the third straight y/y fall, following a 10.8% decline in the previous quarter.