–Consumption Forecast to Be Nearly Flat Amid High Costs After Recent Gains
–Business Investment Seen Up for 2nd Straight Quarter but at Slower Pace
–Q3 GDP Expected to Be Led by Spending on Services, Exports Uncertain Amid Slowing Global Demand
By Max Sato
(MaceNews) – Japan’s gross domestic product for the April-June quarter is forecast by economists to post a third straight quarterly rise, with the pace of increase accelerating to 0.9% on quarter, or an annualized 3.3%, from 0.7% (2.7 annualized) in January-March, as solid net exports, led by recovering auto exports and easing import costs, mitigated the effects of sluggish consumer spending and business investment.
The median forecast for Q1 real GDP growth is based on projections by 10 economists compiled by Mace News, which ranged from 0.5% to 1.0% increases on quarter, or from 1.8% to 4.2% gains annualized.
The Cabinet Office will release preliminary GDP data for the first quarter of 2023 at 0850 JST Tuesday, Aug. 15 (2350 GMT/1950 EDT Monday, Aug. 14).
The expected 3.3% expansion at an annualized rate would follow solid economic growth in the first quarter, which was boosted by an unexpected surge in private-sector inventories and resilient consumer spending. It would also exceed the annualized Q2 GDP growth rates of 2.4% in the U.S. and 1.1% in the Eurozone.
Looking ahead, economic growth in July-September is expected to lose some steam in the face of slowing global demand and domestic labor shortages, but it is still likely to be shored up by solid consumer spending, thanks to widespread wage hikes and an expected sharp increase in summer bonuses.
Spending on Services Seen Solid but Overall Consumption Slowing
The median forecast for private consumption, which accounts for about 55% of GDP, is nearly flat, up just a 0.1% on quarter, in the second quarter (forecasts ranged from a 0.4% drop to a 0.3% gains) as elevated costs for daily necessities weighed on many households. It would still be a fifth straight rise following increases of 0.5% rise in the first quarter, 0.2% in the fourth quarter of 2022 and 0.1% in the third quarter.
New vehicle sales continue to pick up while spending on eating out and traveling has been robust thanks to widely eased Covid public health rules and the government’s tourism subsidy program.
Domestic demand is expected to trim the Q2 GDP by 0.1 percentage point after boosting Q1 growth by 1.0 point (forecasts ranged from a negative 0.3 point to a positive 0.3 point) in light of slower consumption and a pullback in private inventories.
The Bank of Japan’s supply-side Consumption Activity Index fell a seasonally adjusted 0.5% on the month in June after rising 0.8% in May and falling 0.1% in April. The index slipped 0.6% in the April-June quarter compared to January-March, when it rebounded 0.9%. Figures exclude inbound tourism consumption but include outbound tourism spending.
Capex to Post 2nd Straight Rise
Business investment in equipment is expected to post its second straight rise in April-June, up 0.6% on quarter (forecasts ranged from a 0.4% drop % to a 1.7% rise), after an unexpected rebound, by 1.4%, in January-March and a 0.6% drop in in October-December. Some firms are cautious about implementing their plans, although capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
The Bank of Japan’s quarterly Tankan business survey for June released last month showed both large and small firms revised up their combined plans for investment in equipment for fiscal 2023 that began on April 1, with major firms upgrading their plans more than expected and smaller firms less than forecast.
The latest industrial production data showed that shipments of capital goods excluding transport equipment – a key indicator of business investment in equipment in GDP data – rebounded 3.7% on quarter in April-June after slumping 6.5% in January-March, falling 5.1% in October-December after rising 8.1% in July-September.
Net Exports Seen Rebounding as Imports Continue to Drop
The median forecast for net exports of goods and services – exports minus imports – is for a positive 0.8 percentage point contribution to the total domestic output (forecasts ranged from 0.4- to 1.3-point gains) in the second quarter. In the previous quarter, the key measure of external demand pushed down the GDP by 0.3 point after raising it by 0.4 point in the final quarter of 2022.
Japanese exports are expected to rebound in the April-June GDP after posting
their first drop in six quarters in January-March while imports are seen falling for the third consecutive quarter.
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 of services, but exports of goods have been slower to recover, except for faster shipments of automobiles thanks to improving supply chains.
The BOJ’s real export index rose 5.4% on the month in June, after falling 3.5% in May and rising 2.7% in April, led by a sharp rebound in shipments of capital goods as well as solid gains in intermediate and information technology goods. Exports of autos and auto parts continued recovering. On quarter, real exports in the April-June period rebounded 2.7% after slumping 3.4% in January-March.
Japanese export values posted a modest rise on the year in June as recovering supply chains supported automobile shipments to the U.S. and Europe but volumes continued to shrink on sluggish global demand for semiconductors and iron and steel, Ministry of Finance data showed. Import values fell on the year for the third month in a row in June after recording their first drop in 27 months in April amid easing energy and commodities prices.
Private Inventories to Trim GDP Growth, Public Works Spending Seen Up
Private sector inventories are expected to make a negative 0.3-point contribution to the Q2 GDP (forecasts ranged from a 0.4-point drop to being flat) after pushing up the Q1 GDP by 0.4 percentage point.
Public works spending is expected to mark a fifth straight quarterly increase, up 1.1% on the quarter in April-June (forecasts ranged from 0.7% to 2.3% gains), backed by the supplementary budget for fiscal 2022 that ended in March, following a 1.5% rise in January-March.