–Q2 GDP Growth Still High, Led by Sharp Net Export Rebound Amid Falling Import Costs; Consumption, Capex Down
–Q3 GDP Rise Expected to Slow but Supported by Consumer Spending on Services
By Max Sato
(MaceNews) – Japan’s strong economic growth led by a sharp rebound in net exports amid easing import costs in the April-June quarter is expected to be revised down as both business investment in equipment and public works spending appear to be weaker than initially estimated.
The real gross domestic product is forecast to have risen 1.3% on quarter in the second quarter of 2023, revised down from the initial estimate of a 1.5% jump, with its annualized growth rate seen revised down to 5.4% from 6.0%, according to the median forecasts by 10 economists compiled by Mace News. The forecasts ranged from increases of 1.3% to 1.4%, or an annualized pace of 5.1% to 5.7%.
It would follow growth of 0.9% on quarter, or an annualized 3.7% in January-March on an unexpected surge in private-sector inventories, which topped resilient consumer spending as the largest factor to lead the growth.
The Cabinet Office will release the revised (second preliminary) GDP data for the second quarter at 0850 JST Friday, Sept. 8 (2350 GMT/1950 EDT Thursday, Sept. 7).
From a year earlier, the Japanese economy is forecast to have grown 1.8% (revised down from a 2.0% rise) in April-June, posting the ninth consecutive rise following a 2.0% rise in January-March.
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 resilient consumer spending, thanks to widespread wage hikes and an expected sharp increase in summer bonuses.
Domestic Demand Seen Revised Down Slightly
Domestic demand is expected to have trimmed the second quarter GDP by 0.4 percentage point, slightly more than the initial reading of a negative 0.3-point contribution, after boosting Q1 growth by 1.2 points. The decline was due to a fall in private consumption and a pullback in private inventories in the preliminary data released last month. The only positive contributions to domestic demand came from a sharp gain in housing investment and a rise in public works spending.
Private consumption, which accounts for about 55% of GDP, is expected to have fallen an unrevised 0.5% on quarter in the second quarter. Elevated costs for daily necessities and durable goods weighed on many households. It was the first drop in three quarters following increases of 0.6% in the first quarter and 0.2% in the fourth quarter of 2022 and a slight decline (a 0.03% drop) in the third quarter.
Consumption pushed down the GDP by a preliminary 0.3 percentage point after making a positive 0.3 contribution to the total domestic output in the previous quarter.
Capex Rebound Seen Revised Down Sharply
The change in business investment in equipment is forecast to be revised down to a 0.8% drop on quarter in April-June from the initial reading of being flat (up 0.03%). It followed an unexpected rebound, by 1.8% in January-March and a 0.7% drop in October-December. Some firms remain 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.
Capex trimmed the GDP by a preliminary zero contribution after providing a positive 0.3-point contribution the previous quarter.
The revision forecast is based on the results of a quarterly business survey by the Ministry of Finance released last week.
Net Exports Rebound as Imports Continue to Drop
Net exports of goods and services — exports minus imports — are expected to have made a positive 1.8 percentage point contribution to the total domestic output, as reported last month. In the previous quarter, the key measure of external demand pushed down the GDP by 0.3 point after raising it by a revised 0.3 point in the final quarter of 2022.
Japanese exports rebounded 3.2% on quarter in the April-June GDP, despite slow economic recovery in China, after posting their first drop in six quarters in January-March. Imports fell 4.3% for the third consecutive quarterly drop.
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. Exports of goods have been slower to recover, except for faster shipments of automobiles thanks to improving supply chains.
Private Inventories Trim GDP Growth, Public Works Spending Seen Revised Down
Private sector inventories are forecast to have provided a negative 0.2-point contribution to the second quarter GDP, unrevised from the initial estimate, after pushing up the first quarter GDP by 0.4 percentage point.
Public works spending is expected to have marked its fifth straight quarterly increase, up just 0.1% on the quarter in April-June and revised down from an initial 1.2% rise. This category has been backed by the supplementary budget for fiscal 2022 that ended in March. It followed a 1.7% rise in January-March. Public investment raised the second quarter GDP by a preliminary 0.1 percentage point after a positive 0.1-point contribution to the GDP in the previous quarter.
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Contact this reporter: max@macenews.com
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