— Q4 GDP Rebound Expected Amid Uncertainty Over Covid Impact
By Max Sato
(MaceNews) – Japan’s economic contraction in July-September quarter was revised down sharply as consumer spending and net exports turned out to be weaker than previously estimated and a buildup in private-sector inventories was lower than thought, more than offsetting an upward revision to business investment, Cabinet Office data released Wednesday showed.
The gross domestic product slumped a real 0.9% on quarter, or at an annualized pace 3.6%, in the third quarter, revised down from the initial estimate of 0.8% contraction, or 3.0% on an annualized basis. The revised GDP figures came in much weaker than the median economist forecast of a 0.7% decrease (forecast range -0.9% to -0.4%), or a 2.8% annualized drop (range: -3.5% to -1.5%)
It was the first contraction in two quarters after the economy expanded 0.5% (revised up from +0.4%), or an annualized 2.0% (revised from 1.5%) in the second quarter, led by resilient consumer spending despite on-and-off restrictions on economic activity during the pandemic.
The Cabinet Office conducted its annual revision to previous figures. The GDP contraction in fiscal 2020 that ended in March 2021 was revised down to a 4.5% drop from a 4.4% fall.
From a year earlier, the economy rose 1.2% (revised down from the initial reading of a 1.4% rise) in July-September, posting the second quarterly pickup from the pandemic-hit slump last year, but the pace of growth decelerated from a 7.3% increase in April-June (revised down from a 7.6% rise).
Other details from revised (second preliminary) Q3 GDP data
- Private consumption, which accounts for about 55% of GDP, dipped 1.3% on quarter in Q3 (revised down from a preliminary 1.1% fall) after a 0.6% rebound in Q2 (revised down from a 0.9% rise). It made a negative contribution of 0.7 percentage point (revised down from 0.6 point) to the third quarter output. The stay-at-home lifestyle during the pandemic initially boosted demand for furniture and electrical appliances but it has waned in recent months.
- The quarter-on-quarter drop in business investment in equipment was revised up to a 2.3% decrease in the third quarter from the initial reading of a 3.8% plunge while the rise in second quarter capex was revised down to 2.0% from 2.2%. Business investment posted the first quarter-on-quarter shrink in four quarters and pushed down the Q3 GDP by 0.4 percentage point, revised up from a negative 0.6 point, after pushing up the Q2 GDP by 0.3 point.
- Private sector inventories provided a positive 0.1 percentage point contribution to the July-September GDP (revised down from a preliminary 0.3-point rise), after making zero (+0.0 point) contribution to the April-June GDP (revised up from a negative 0.3 percentage point). Weaker demand and logistical delays appear to have led a slight buildup in inventories.
- Public works spending dropped 2.0% (initially a 1.5% drop) on quarter in Q3 for a third consecutive decline after a 2.6% drop in Q2 (revised down from a 2.1% drop). It pushed down the July-September GDP by an unrevised 0.1 percentage point. The government has focused more on providing financial supports to individuals and businesses hit by the pandemic as well as importing Covid-19 vaccines.
- In Q3, domestic demand pushed down total domestic output by an unrevised 0.9 percentage point after raising Q2 GDP by 0.7 percentage point.
- Net exports of goods and services – exports minus imports – were neutral to the Q3 GDP, revised down from the initial estimate of a positive 0.1 percentage point contribution, after taking 0.2 percentage point off the Q2 GDP.
- Exports of goods and services fell 0.9% on quarter (revised up from a 2.1% fall) in July-September after rising 2.5% (revised down from 3.2%) in April-June. Imports dropped 1.0% (revised up sharply from a 2.7% fall) after increasing 3.9% (revised down from 5.3%) in the previous quarter, offsetting the impact of the recent slowdown in exports (a decline in imports are counted as a positive factor for net exports). Protracted global semiconductor shortages and pandemic-caused delays in parts supply from Southeast Asia have forced automakers and electronics firms to reduce production and shipments.
Q4 GDP Rebound Expected on Eased Covid Restrictions
As the number of new Covid-19 cases drifted lower toward the end of September after a spike in August, the Japanese government lifted its state of emergency restrictions on Oct. 1, while urging people to maintain social-distancing and face-covering protocols. Municipalities are gradually easing strict rules on business hours and public events.
Against this backdrop, economists on average forecast GDP would rebound 4.93% at an annualized rate in October-December after contracting an estimated 0.56% in July-September (their Q3 estimate was too optimistic), according to the monthly ESP Survey of 37 forecasters conducted by the Japan Center for Economic Research from Oct. 28 to Nov. 4 and released on Nov. 10, days before preliminary Q3 GDP data showed a weaker-than-expected drop. The results of the next survey will be published on Dec. 15.
Data for October have pointed to a slightly firmer start to the final quarter of 2021, although the impact of the new Omicron variant on consumer spending, business investment and exports remains uncertain.
Japanese industrial production rebounded a seasonally adjusted 1.1% from the previous month in October, marking the first increase in four months after a 5.4% slump in September amid easing disruptions of parts supply from Southeast Asia,
Retail sales rose 0.9% on the year in October after a 0.5% fall in September as fuel prices continued rising and the government eased Covid restrictions. On the month, retail sales rose a seasonally adjusted 1.1% after rebounding 2.8% in September. The increase was seen in all categories except for automobile sales, which posted a second straight monthly decline due to supply constraints.
On the demand side, real average spending by households with two or more people dipped 0.6 on year, posting the third straight year-on-year drop, but the pace of decline decelerated from 1.9% in September and 3.0 percent in August, when the Delta variant caused a spike in new coronavirus cases.
Contact this reporter: max@macenews.com
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