–Growth Led by Sharp Rise in Consumption, Modest Gains in Capex, Net Exports
–Q1 GDP Faces Downside Risks As Govt Resumes Restrictions To Fight Rapid Covid Spread
–Japan’s Economy Posts 1st Growth in 3 Years in 2021
By Max Sato
(MaceNews) – Japan’s economy rebounded in the October-December quarter, after contracting in July-September, as the government lifted Covid restrictions before the Omicron variant wreaked havoc in the new year and easing parts supply constraints supported auto production and shipments, Cabinet Office data released Tuesday showed.
It was the first growth in two quarters after the economy contracted 0.7% (revised up from a 0.9% fall), or an annualized 2.7% (revised from a 3.6% drop), in July-September, when a Covid resurgence triggered by the Delta variant dampened shopping and dining out while supply chain disruptions hampered business investment.
To hit the official economic forecast of a real 2.6% growth for fiscal 2021 ending March 31, Japan’s GDP would have to expand 0.29% on quarter, or an annualized rate of 1.2%, in the January-March quarter.
From a year earlier, the economy rose 0.7% in October-December posting the third consecutive rise, with the pace of growth decelerating from an increase of 1.2% in July-September and 7.3% in April-June as some components of the economy have recovered to pre-pandemic levels.
For the whole of 2021, the GDP grew 1.7% on year, marking the first annual expansion in three years (since +0.6% in 2018) as consumption and net exports picked up, but it only partially recovered from a 4.5 percent decline in 2020 and a 0.2% drop in 2019.
Growth Led by Consumption, Capex
Private consumption, which accounts for about 55% of GDP, rebounded 2.7% on quarter in Q4, coming in stronger than the median projection of a 2.3% gain and following a 0.9% drop (revised from a 1.3% fall) in Q3. It pushed up total domestic output by 1.4 percentage point after trimming 0.5 point in the previous quarter.
Consumers dined out and went traveling more often between the fifth and sixth waves of the pandemic while demand for furniture and electronic appliances arising from the stay-at-home lifestyle waned.
In October-December, business investment rose 0.4% on quarter, after a revised 2.4% slump in the previous quarter. The median forecast was for a 0.8% rise on quarter. Capex pushed up the Q4 GDP by just 0.1 percentage point after pushing down the Q3 GDP by 0.4 point.
Japanese firms appear to remain cautious on implementing their solid capital investment plans amid uncertainty over the negative impact of the pandemic. However, there is strong underlying demand for upgrading computer software for digiting and automating operations amid chronic labor shortages for some industries and the government-led drive to modernized the economy.
Net Exports Up as Imports Drop
Net exports of goods and services – exports minus imports – pushed up the total domestic output by 0.2 percentage point in Q4 after adding 0.1 percentage point off the Q3 GDP. It was the second straight positive contribution. The median forecast was a positive 0.2 point contribution (ranging from zero to +0.5 percentage point).
Exports of goods and services rose 1.0% on quarter in October-December after falling 0.3% in July-September. Imports fell 0.3% after slumping 0.9% in the previous quarter.
The Bank of Japan’s real export index dipped a seasonally adjusted 1.2% on month in December for the first drop in two months, led by a sharp drop in capital goods shipments and despite a continuing pickup in auto exports. It followed a 9.1% surge in November and a 0.5% fall in October. The index sagged 0.9% in the October-December quarter, the second straight quarterly decline after falling 2.9% in July-September.
Private Inventories, Public Investment Dip
Private sector inventories provided a negative 0.1 percentage point contribution to the October-December GDP (forecasts ranged from -0.2 to +0.3 point), after pushing up the July-September GDP by 0.1 point. Four of the 10 economists polled had projected a slight rise based on a faster buildup in manufacturers’ inventories in Q4 from Q3 while two had forecast a slight drop, assuming some inventories were drawn down to meet higher shipments amid reopening demand.
Public works spending dipped 3.3% on quarter in Q4 for a fourth consecutive decline after a 3.0% drop in Q3. It pushed down the GDP by 0.2 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, instead of improving infrastructure. The median forecast for public investment was a 3.0% slump on quarter in Q4 (forecasts ranged from -4.0% to -0.4%).
Downside Risks to Q1 GDP
On average, 36 economists polled by the Japan Center for Economic Research from Jan. 28 to Feb. 4 forecast GDP would grow just 1.70% at an annualized rate in the first quarter of 2022, down from 5.07% projected in the previous survey from Dec. 24 to Jan. 7.
The latest government surveys for January also showed that the Omicron storm in the new year is hurting business and consumer confidence as the government was forced to resume its on-and-off request for strict restrictions on mobility and business operations, short of a state of emergency.