–Consumer Spending on Services, Rebound in Business Investment Lead Economic Growth
–Net Exports Drop Amid Slowing Global Demand
–Q2 GDP Seen Supported by Consumption Without Covid Restrictions but High Prices Remain Headwind
By Max Sato
(MaceNews) – Japan’s solid economic growth led by resilient consumer spending in the January-March quarter is expected to be revised up slightly as a rebound in business investment appears to be larger than initially estimated while public works spending likely rose less than previously thought.
The real gross domestic product is forecast to have risen 0.5% on quarter in the first quarter of 2023, revised up from the initial estimate of a 0.4% rise, with its annualized growth rate seen revised up to 1.9% from 1.6%, according to the median forecasts by 10 economists compiled by Mace News. The forecasts ranged from increases of 0.4% to 0.6%, or an annualized pace of 1.5% to 2.3%.
The first growth in three quarters followed a slight contraction (-0.01%) on quarter, or an annualized 0.1% (revised down from 0.1%) dip in the fourth quarter and a 0.2% drop (an annualized 1.0% fall) in the third quarter.
The Cabinet Office will release the revised (second preliminary) GDP data for the first quarter at 0850 JST Thursday, June 8 (2350 GMT/1950 EDT Wednesday, June 7).
From a year earlier, the economy is forecast to show an unrevised 1.3% rise in January-March, posting the eighth consecutive rise following a 0.4% gain in October-December.
Japanese policymakers believe the domestic economy still needs fiscal and monetary policy support as its output gap has been in negative territory for over three years, although it has narrowed to minus 0.9 percentage point in the first quarter of 2023 from minus 1.2 points in the previous quarter and a wide gap of negative 9.1 points in the second quarter of 2020.
Looking ahead, economic growth in April-June is expected to remain solid as consumer spending is propped up by looser Covid rules and pent-up demand for traveling and dining out, easing the impact of sluggish exports amid slower global demand. The key is whether small businesses can afford to raise wages at the same fast pace as major firms plan to do in fiscal 2023 that began in April.
Solid Consumption Seen Unrevised
The preliminary Q1 GDP data released last month showed that domestic demand was led by consumer spending amid improving sentiment and faster deliveries of automobiles, offsetting the effects of a drop in external demand, down amid weak exports to Asia.
Private consumption, which accounts for about 55% of GDP, is forecast to show an unrevised 0.6% increase on quarter in the first quarter after rising 0.2% in the fourth quarter of 2022 and being unchanged in the third quarter. Consumption pushed up the GDP by a preliminary 0.3 percentage point after making a positive 0.1 percentage contribution to the total domestic output in the previous quarter.
In the absence of strict public health rules for the first time in three years, many households continued spending more on eating out and traveling, taking advantage of the government’s discount program aimed at shoring up the Covid-hit tourism industry.
Capex Rebound Seen Revised Up
Business investment in equipment rebounded in January-March, with an expected 1.3% rise (compared to an initial 0.9% rise) on quarter, after falling 0.7% in October-December and rising 1.5% in July-September. Capex raised the GDP by a preliminary 0.2 percentage point in the first quarter after providing a negative 0.1- point contribution the previous quarter.
Based on the results of a quarterly business survey conducted by the Ministry of Finance released last week, the median economist forecast was an upward revision to a 1.3% increase (forecasts ranged from 0.9% to 1.7% gains).
The demand-side survey by the MOF showed that combined capital investment by non-financial Japanese companies rose 11.0% on year in the January-March quarter, up from increases of 7.7% October-December. On quarter, combined capital outlays gained a seasonally adjusted 2.3% after rising 0.8% in the previous quarter. The capex figures in the preliminary GDP calculation are based solely on supply side data.
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.
External Demand Weak Amid Slower Global Demand
External demand was weak in January-March. Net exports of goods and services — exports minus imports — made a negative 0.3 percentage point contribution to the total domestic output in the first quarter after pushing up the GDP by 0.4 point in the previous quarter. The median forecast is un unrevised 0.3-point drop.
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 Positive, Public Works Spending Seen Revised Down
Private sector inventories provided a slightly positive 0.1-point contribution to the first quarter GDP after pushing down the fourth quarter GDP by 0.5 percentage point. It is expected to be unrevised in the second reading.
Public works spending posted its fourth straight increase, up a preliminary 2.4%, on quarter in January-March, following a 0.2% rise in October-December. The median forecast is a downward revision to a 2.1% rise. Public investment raised the first quarter total domestic output by 0.1 percentage point after making zero contribution to the GDP in the previous quarter.