By Max Sato
(MaceNews) – Japan’s economy for the July-September quarter surged an upwardly revised 5.3% on quarter, or an annualized 22.9%, from the initial reading of +5.0% (+21.4% annualized), as a rebound in consumer spending turned out to be stronger than previously estimated and the decline in business investment was smaller than initially believed, Cabinet Office data released Tuesday showed.
As reported last month, the first expansion in real gross domestic product in four quarters only recovered just over a half of a record plunge in April-June amid the pandemic-triggered slowdown. It followed the deepest contraction of 8.3% q/q on record (revised from an earlier estimate of -8.2%), or an annualized 29.2% (revised from -28.8%) in the second quarter.
The previous expansion was +0.2% q/q, or an annualized +0.7% (revised up from +0.05%, or +0.2% annualized) in July-September 2019.
In Q3, domestic demand pushed up the total output by a revised 2.6 percentage points (preliminary +2.1 points) after slashing Q2 GDP by 5.2 percentage points (revised down from -4.9 points).
Net exports – exports minus imports – raised GDP by 2.7 percentage points revised down from a preliminary +2.9 points) in July-September after trimming it by a revised 3.3 percentage points in the previous quarter. Exports rose an unrevised 7.0% on quarter while imports fell 8.8%, which was smaller than the initial reading of a 9.8% drop.
Demand for Japanese automobiles from the U.S. and chip-making equipment from China saw a gradual pickup from the depth of a global slump triggered by waves of coronavirus infections.
Consumers were also adapting to COVID-19 lifestyles, spending more on food to cook at home and ordering goods online while restricting dining out and traveling.
Private consumption, which accounts for about 55% of GDP, jumped a revised 5.1% on quarter (revised from +4.7%) in Q3, for the first gain in four quarters, after slumping 8.3% (revised from -8.1%) in Q2. It made a positive contribution of 2.8 percentage points (revised from +2.6 points) to the third-quarter GDP.
Among the soft spots, business investment dipped 2.4% on quarter in Q3 but the decrease was smaller than the initial estimate of -3.4%. It was the second straight q/q drop after shrinking 5.7% (revised from -4.7%) in Q2. It trimmed GDP by 0.4 percentage points, instead of a preliminary 0.6 point.
Factory output rebounded in Q3 but it was still not strong enough to revive business investment for upgrading equipment and expanding automation, a key segment of the economy that has shown no signs of recovery amid the uncertain global outlook.
Private-sector inventories made a negative contribution of an unrevised 0.2 percentage point to Q3 GDP as companies used stockpiles of goods for higher demand in shipments while revving up production.
Public investment rose 0.5% (revised from +0.4%) on quarter in Q3, the second straight rise after +1.9% (revised from +1.2%) in Q2. It made no contribution to overall output in Q3.
The Cabinet Office used a quarterly business survey by the Ministry of Finance released on Dec. 1. The MOF survey on business investment and inventories is based on the demand side while preliminary GDP is based solely on supply side data.
Combined capital investment by non-financial Japanese companies fell 10.6%on year in July-September, the second straight quarter of decrease after slumping 11.3% in April-June, according to the MOF’s Financial Statements Statistics of Corporations by Industry. Non-financial firm capital outlays (excluding software), a key indicator for GDP revisions, posted the fourth consecutive decline, down 11.6% on year after falling 10.4% in Q2. On quarter, capex (excluding software) slipped just 1.3% in Q3 for the second straight q/q fall, improving from Q2’s sharper 7.5% drop.
The pace of decline decelerated slightly but companies appeared to be still cautious about implementing capex plans amid high uncertainty over global and domestic demand.
FISCAL 2019 GDP SLUMPS UNDER NEW FORMULA
In addition to regular revisions to quarterly GDP figures, the Cabinet Office also made some changes to how it calculates total output, a move that takes place about every five years. It now uses industrial data of the 2015 base year, instead of 2011. This resulted in adding renovations to housing construction and business investment. GDP figures now also cover some real-estate commissions and copy rights in entertainment services as well as bed and breakfast services.
Under the new data formula released Tuesday, Japan’s GDP in fiscal 2019 that ended in March this year contracted a real 0.3% from the previous fiscal year, revised down from the previous estimate of being flat. It was the first drop in five years after growing 0.3% in fiscal 2018.
SLOWER GROWTH FORECAST
Looking ahead, economists expect Japan’s economy to continue growing in the final quarter of 2020, backed by a pickup in consumer sentiment, but they also warn that a spike in coronavirus infections in many parts of the world is likely to slow down economic activity again.
Economists on average have forecast that the domestic economy would expand 4.04% at an annualized pace in October-December, before slowing further to 2.46% in January-March 2021, according to the latest monthly ESP Survey of 34 forecasters by the Japan Center for Economic Research released before the preliminary Q3 GDP data.
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Contact this reporter: max@macenews.com.
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