–Japan GDP’s 3rd Straight Q/Q Growth Supported by Consumption
–Sharp Capex Rebound Seen on Solid Digitalization, Greener Energy Demand
–Q3 GDP Growth Faces Headwinds: Covid Spike, Slower Global Growth, China Lockdowns
By Max Sato
(MaceNews) – Japan’s consumption-led economic growth in the April-June quarter is likely to be revised up as business investment in equipment seems to be stronger than initially estimated and the drawdown of private inventories is seen smaller.
The real gross domestic product is forecast to have expanded 0.7% on quarter, or an annualized 3.0%, in the second quarter, revised up from the initial growth estimate of 0.5%, or an annualized 2.2%, according to the median forecast among 10 economists compiled by Mace News. The forecasts ranged from increases of 0.6% to 1.0%, or an annualized pace of 2.5% to 4.0%.
The Cabinet Office will release revised (second preliminary) GDP data for the second quarter at 0850 JST Thursday, Sept. 8 (2350 GMT/1950 EDT Wednesday, Sept. 7).
In the preliminary GDP data for April-June released last month, the economy posted the third straight quarter-on-quarter growth, led by pent-up demand for shopping, dining out and traveling due to eased public health restrictions, while China’s two-month lockdown of Shanghai through the end of May exacerbated supply bottlenecks.
In the data, the previously reported slight contraction by 0.1% on quarter in January-March was revised up to a tiny 0.01% rise, with an annualized 0.1% gain (instead of a 0.5% fall). Domestic demand proved to be more resilient despite Covid restrictions, offsetting a decline in net exports brought on by surging import costs.
Looking ahead, economic growth in July-September faces some headwinds as the Omicron BA.5 subvariant has sparked record numbers of new coronavirus infections and deaths since late July, although the government has refrained from imposing strict public health rules and eased border restrictions to shore up the gradual economic recovery from the pandemic slump.
Global growth is slowing as many central banks are rushing to raise interest rates in a desperate bid to bring decades-high inflation back to target. China’s strict anti-Covid measures including one-and-off lockdowns continue, making the outlook for production and shipments of key components for Japanese vehicles and electrics uncertain.
On average, 34 economists polled by the Japan Center for Economic Research from July 29 to Aug. 5 forecast the GDP would grow 2.72% at an annualized pace in the July-September quarter based on their average estimates that the economy grew 2.74% in April-June and slumped 0.5% in January-March, according to the center’s ESP Forecast released on Aug. 10 ahead of the preliminary Q2 GDP data.
Strong Consumption Growth Seen Unrevised
Private consumption, which accounts for about 55% of GDP, is forecast to show an unrevised 1.1% rise on quarter in the second quarter following a 0.3% gain in the first quarter and a 2.4% rebound in the final quarter of 2021. It pushed up the GDP by a hefty 0.6 percentage point after making a positive 0.2-point contribution to the total domestic output in the previous quarter.
More people flocked to restaurants and bars, went to music and sports events and made domestic trips after the government ended two months of strict Covid restrictions in late March. An exceptionally early end to the rainy season in late June and a sudden surge in temperatures to record highs for the month also supported demand for summer clothing and other seasonal goods.
Sharp Capex Rebound Likely Revised Up
The quarter-on-quarter growth in business investment in equipment is forecast to be revised up to a 1.7% increase on quarter from an initial 1.4% rise, judging from the results of a quarterly business survey conducted by the Ministry of Finance released last week. In the preliminary data, capex rebounded sharply from a 0.3% drop in January-March, pushing up the GDP by 0.2 percentage point after providing zero contribution to the slight economic growth in the first quarter.
The demand-side survey by the MOF showed that combined capital investment by non-financial Japanese companies rose 4.6% on year in the April-June quarter, accelerating from a 3.0% increase in January-March. On quarter, combined capital outlays gained a seasonally adjusted 3.9% after being flat in the previous quarter.
The capex figure in the preliminary GDP calculation is based solely on supply
side data.
There remains solid demand for upgrading computer software for digitalizing and automating operations as well as a move toward reducing emissions amid some signs of easing in supply constraints and elevated producer costs.
Flat External Demand Amid High Import Prices
No revisions are expected to the zero contribution of external demand.
In the preliminary data, net exports of goods and services – exports minus imports – made zero contribution (+0.0 percentage point) to the total domestic output after pushing down the GDP by 0.5 percentage point for the first negative contribution in three quarters.
Exports of goods and services rose 0.9% on quarter in April-June, posting the third straight quarterly gain after rising 0.9% in January-March. Imports gained 0.7% after rising 3.5% the previous quarter. The pace of imports slowed after the government had bought more Covid-19 vaccines from the US and Europe in the previous quarters.
The Bank of Japan’s real goods export index fell a seasonally adjusted 3.2% on quarter in April-June after rising 2.3% in January-March and slipping 0.1% in October-December. A rebound in capital goods shipments was more than offset by drops in the shipments of automobiles and auto parts as well as computers, semiconductors and other information technology goods.
Private Inventory Drawdowns May be Smaller; Public Works Seen Revised Up
Private sector inventories are forecast to have provided a negative 0.3 percentage point contribution to the April-June GDP, revised up slightly from a preliminary 0.4-point drop. Companies used built-up inventories to meet shipment needs. This category raised the first quarter GDP by 0.5 point.
Public works spending marked the first quarter-on-quarter rise in six quarters, up a preliminary 0.9% in April-June following a 3.2% drop the previous quarter, as the government implemented projects included in the supplementary budget for the fiscal 2021 budget. It is forecast to be revised up to a 1.3% increase.
In the preliminary data, public investment made zero contribution to the GDP after trimming 0.2 point off the first-quarter output. Earlier, the government was focused more on purchasing Covid-19 vaccines, which falls into the public consumption category.