–Forecasts for Weaker Capex, Higher Private Inventories Based on MOF Survey
–Private Consumption Seen Flat, Unrevised from Preliminary Data
–Q2 GDP Growth Expected to Rebound As Covid Restrictions Eased
By Max Sato
(MaceNews) – Japan’s economic slump in the January-March quarter, which was caused by the drag from Covid restrictions on consumer spending and a surge in import costs, is likely to be revised down slightly as business investment in equipment appears to be softer than previously estimated.
The gross domestic product is forecast to have contracted a real 0.3 % on quarter, or at an annualized 1.1 %, in the first quarter, revised down slightly from the initial estimate of a 0.2% drop, or a 1.0% decline on an annualized basis, according the median forecast of 10 economists compiled by Mace News. The forecasts ranged from -0.3% to -0.1% on quarter, or an annualized -1.4% to -0.5%.
The Cabinet Office will release revised (second preliminary) GDP data for the first quarter of 2022 at 0850 JST Wednesday, June 8 (2350 GMT/1950 EDT Tuesday, June 7).
The economy grew 0.9%, or an annualized 3.8%, in the final quarter of 2021, when 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.
In the preliminary GDP data for January-March released last month, domestic demand showed some resilience led by capital investment, raising the total domestic output by 0.2 percentage points, while net exports provided a negative 0.4 point.
Looking ahead, economists expect private consumption, which showed a smaller-than-expected drop in the first quarter, will lead a rebound in the April-June quarter GDP now that the government ended on March 21 its strict Covid rules which had been in place since late January.
On average, 36 economists polled by the Japan Center for Economic Research from April 28 to May 11 forecast the GDP would rebound a sharp 5.18% at an annualized pace in the April-June quarter based on their average estimate that the economy slumped 1.36% in previous three-month period, according to the center’s ESP Forecast released last month.
Consumption Flat, Capex Solid but Seen Revised Down
Private consumption, which accounts for about 55% of GDP, is forecast to be unrevised at being flat (-0.0%) on quarter in Q1 following a sharp 2.5% rebound in Q4 and a 1.0% slip in Q3. In the preliminary data, it made zero contribution with a negative bias (-0.0 percentage point) to the GDP after adding 1.3 points to the total domestic output in the previous quarter.
The government urged many prefectures to adopt strict anti-Covid measures short of a state of emergency for about two months until March 21. People were cautious about dining out. Domestic leisure travel didn’t start to pick up until late March to early April.
The quarter-on-quarter growth in business investment in equipment is forecast to be revised down to a 0.3% increase on quarter from a 0.5% rise, judging from the results of a quarterly business survey conducted by the Ministry of Finance. In the preliminary data, capex showed the second straight increase after a 0.4% rise in the previous quarter, pushing up the Q1 GDP by 0.1 percentage point after adding 0.1 point to the Q4 GDP.
The demand-side survey by the MOF released last week showed that combined capital investment by non-financial Japanese companies rose 3.0% on year in the January-March quarter, decelerating from a 4.3% increase in October-December. On quarter, combined capital outlays edged up a seasonally adjusted 0.3% for the second straight quarter-on-quarter increase but its pace slowed from a 3.1% rise in the previous quarter.
There is solid demand for upgrading computer software and machines for digitizing and automating operations as well as a move toward reducing emissions, but some firms appear cautious as the global growth outlook has been clouded by the Ukraine war and supply constraints.
Net Exports Down on Import Surge
No revisions are expected to the negative contribution of external demand.
In the preliminary data, net exports of goods and services – exports minus imports – pushed down the total domestic output by a sharp 0.4 percentage point in the first quarter after pushing up the fourth quarter GDP by 0.1 point. It was the first negative contribution in three quarters.
Exports of goods and services rose 1.1% on quarter in January-March, posting the second straight quarterly gain after rising 0.9% in October-December. Imports rose at a much faster pace of 3.4% after rising 0.3% the previous quarter, reflecting higher energy and commodities prices and the need to purchase more Covid-19 vaccines from the US and Europe.
The Bank of Japan’s real export index rose a seasonally adjusted 2.2% on quarter in January-March for the first rise in three quarters, recovering from decreases of 0.1% in October-December and 1.9% in July-September. A decline in capital goods shipments amid uncertainty caused by the Ukraine war was more than offset by a pickup in auto and auto parts shipments as well as solid demand for computers, semiconductors and other information technology goods.
Private Inventories Up, Public Works Drop Seen Revised Down
Private sector inventories are forecast to have provided a positive 0.3 percentage point contribution to the January-March GDP, revised up slightly from a preliminary plus 0.2 point. This category trimmed the fourth quarter GDP by 0.2 point.
The quarter-on-quarter decline in public works spending is expected to be revised down to a 3.9% drop in the first quarter from the initial reading of a 3.6% fall. It was the fifth consecutive decline after a 4.7% slump in the fourth quarter amid construction worker shortages and surging materials costs. It pushed down the GDP by a preliminary 0.2 percentage point, as seen in the previous three quarters.
The government has been focused more on purchasing Covid-19 vaccines, which falls into the public consumption category (up 0.6% on quarter).