–Q1 GDP Growth Stronger Than Forecast as Capex Shows Unexpected Rebound
–Consumption Rise Higher Than Expected, Backed by Eased Covid Rules, Travel Subsidies
–Q2 GDP Seen Supported by Pent-Up Consumer Demand for Services
–Fiscal 2022 GDP +1.2%, Below Official Forecast of +1.7%
By Max Sato
The preliminary data came in stronger than the Mace News median economist forecast of 0.2% growth (forecasts ranged from a 0.4% drop to a 0.4% rise), or an annualized 0.6% gain (minus 1.5% to plus 1.7%).
The rebound in the first quarter GDP followed a slight contraction (revised down to minus 0.0% from plus 0.0%) on quarter, or an annualized 0.1% drop (revised from plus 0.1%), 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 the outlook remains uncertain as Japan continues to face slower global demand and elevated costs, although wage hikes for fiscal 2023 ending March next year are estimated to be higher than in the previous year.
“The GDP data for the January-March quarter showed the economy overall continued picking up gradually,” Economic and Fiscal Policy Minister Shigeyuki Goto said in a statement. Domestic demand was led by consumer spending amid improving sentiment and faster deliveries of automobiles, easing the effects of a drop in external demand amid weak exports to Asia, he said.
The nominal annualized GDP amount hit the record high of ¥570.1 trillion in the first quarter, he added.
“We must watch downside risks to global growth but the gradual pickup is expected to continue, backed by improving sentiment, a 30-year high rise in wages (for those working for major firms) and high demand for corporate investment,” said the minister.
From a year earlier, the economy rose 1.3% in January-March (consensus was 1.1%), posting the eighth consecutive rise following a 0.4% rise in October-December.
The real annualized GDP amount rose to ¥548.97 trillion in the January-March quarter from a revised ¥546.81 trillion in October-December, surpassing the recent high of a revised ¥548.25 trillion hit in April-June 2022 (the economy grew 1.1% on quarter) and reaching the highest since ¥557.53 trillion seen in July-September 2019. Those figures are above a revised ¥544.45 trillion recorded in the January-March period of 2020, when the GDP grew 0.4% on quarter before the outbreak of the pandemic triggered an 8.0% slump in the following quarter.
In fiscal 2022, the real GDP rose 1.2% to ¥547.75 trillion, coming in below the official forecast of a 1.7% rise. It followed a 2.6% gain to ¥541.04 trillion in fiscal 2021. The latest figure is still lower than ¥550.14 trillion in the pre-pandemic fiscal 2019.
Consumption Resilient on Reopening Economy Despite High Cost of Living
Private consumption, which accounts for about 55% of GDP, rose 0.6% on quarter in the first quarter, coming in stronger than the median projection of a 0.3% increase on quarter (forecasts ranged from 0.1% to 0.7% gains) for a second straight clear increase following a revised 0.2% rise in the fourth quarter and no growth with a slightly positive bias (+0.0%) in the third quarter.
Consumption pushed up the GDP by 0.3 percentage point, weathering the impact of high costs for daily necessities, after making a positive 0.1 contribution to the total domestic output in the previous quarter.
Capex Rebounds, Beating Most Forecasts for 2nd Straight Drop
Business investment in equipment unexpectedly rebounded in January-March, up 0.9% on quarter, which was much stronger than the median forecast of a 0.4% drop (forecasts ranged from a 1.2% drop % to a 1.0% rise), after falling a revised 0.7% in October-December and rising 1.5% in July-September. Capex raised the GDP by 0.2 percentage point in the first quarter after providing a negative 0.1- point contribution the previous quarter.
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.
Net Exports Down Amid Slow Global Demand
Net exports of goods and services – exports minus imports – made a negative 0.3 percentage point contribution to total domestic output, coming in slightly weaker than the median forecast of a 0.2% drop (forecasts ranged from a 0.5-point drop to a 0.1-point gain).
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.
Japanese exports to posted their first drop in six quarters in the January-March GDP data while imports marked their second consecutive fall 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.
Private Inventories Slightly Positive, Public Works Spending Up
Private sector inventories provided a slightly positive 0.1-point contribution to the first quarter GDP, compared to the median forecast of a positive 0.1-point contribution (forecasts ranged from a 0.1-point drop to a 0.2-point rise) after pushing down the fourth quarter GDP by 0.5 percentage point.
Public works spending posted its fourth straight increase, up 2.4% on the quarter in January-March, which was bigger than the median forecast of a 1.6% rise (forecasts ranged from 0.8% to 3.6% gains), following a revised 0.2% rise in October-December. It was backed by the supplementary budget for fiscal 2022 that ended in March.
Public investment raised the first quarter total domestic output by 0.1 percentage point after making zero contribution (plus 0.0 point) to the GDP in each of the previous quarter.