–Slump Due to Net Exports Pullback, Private Inventories Plunge, Weaker Public Works, Capex
–Consumption Flat in Initial Data as Pent-Up Demand for Eating Out, Traveling Wanes
–Q4 GDP Seen Up but Faces Slowing Global Demand, Domestic Labor Shortages
By Max Sato
(MaceNews) – Japan’s first economic contraction in three quarters in the July-September quarter is expected to show only minor revisions, confirming that weak domestic demand dented overall output for the second straight quarter and net exports slipped after surging in April-June.
The Cabinet Office will release the revised (second preliminary) GDP data for the third quarter at 0850 JST Friday, Dec. 8 (2350 GMT/1850 EST Thursday, Dec. 7).
Economists warn that annual revisions to the gross domestic product, which will be released at the same time, may cause widespread changes to the past figures.
Preliminary data released last month showed the economy contracted 0.5% on quarter, or an annualized 2.1%, as private inventories plunged, net exports slipped after a sharp rebound in April-June, public works spending slowed, pent-up demand for eating out and traveling waned and firms turned cautious about capital investment.
Based on the Ministry of Finance quarterly business survey released last week, some economists expect capital investment will be revised up while others see a downward revision. A few economists forecast a slight upward revision to private sector inventories. Consensus forecasts for these two components of the GDP are no change from the initial readings.
The real GDP is forecast to have fallen 0.5% on quarter in the third quarter of 2023, unchanged from the initial estimate of a 0.5% slip, with its annualized growth rate also seen unrevised at a 2.1% decrease, according to the median forecasts by nine economists compiled by Mace News. The forecasts ranged from decreases of 0.6% to 0.3%, or an annualized pace of 2.4% to 1.1%.
It would follow growth of 1.1% on quarter, or an annualized 4.5% in April-June, which was led by a sharp rebound in net exports amid easing import costs, which mitigated drops in consumption and capital investment.
From a year earlier, the economy is forecast to have grown 1.3% in July-September, revised up slightly from a preliminary 1.2% rise, for the 10th consecutive increase following a 1.7% gain in April-June.
Looking ahead, the economy in October-December is expected to show a slight rebound but faces the headwinds of slowing global demand, elevated costs for daily necessities and labor shortages.
Domestic Demand Drop Seen Unrevised; Consumption Flat
Domestic demand is expected to have trimmed the third quarter GDP by an unrevised 0.4 percentage point (forecasts ranged from 0.5- to 0.2-point decreases) after lowering Q2 growth by 0.7 point. The decline was due to a sharp drop in private inventories as well as a pullback in public works spending and a second consecutive fall in business investment. The only positive contribution to domestic demand came from government investment.
Private consumption, which accounts for about 55% of GDP, was flat (down 0.04%) on quarter in the third quarter in the preliminary data and it is expected to be unrevised (only one economist forecast a downward revision to a 0.1% drop).
Elevated costs for daily necessities and durable goods weighed on many households. It followed a 0.9% drop in the second quarter, which was the first fall in five quarters.
Consumption provided zero (minus 0.0 percentage point) contribution to the GDP in the preliminary data after making a negative 0.5-point contribution to the total domestic output in the previous quarter.
Sluggish Capex Seen Unrevised
Business investment in equipment is forecast to post an unrevised 0.6% drop on quarter in July-September, which came in weaker than expected in the preliminary data. It followed a 1.0% drop in April-June.
Capex trimmed the GDP by a preliminary 0.1 percentage point after providing a negative 0.2-point contribution the previous quarter.
Some firms remain cautious about implementing their plans amid elevated costs and uncertainty over global growth, although capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
The revision forecast is based on the results of a quarterly business survey by the Ministry of Finance released last week, which showed mixed results for business investment.
Net Exports Dip After Q2’s Sharp Rebound
Net exports of goods and services — exports minus imports — are expected to make a negative 0.1 percentage point contribution to the total domestic output, as reported last month. In the previous quarter, the key measure of external demand pushed up the GDP by 1.8 points.
Japanese exports edged up 0.5% on quarter in the July-September GDP, after rebounding a revised 3.9% in April-June and posting their first drop in five quarters in January-March, down 3.5%. Imports rose 1.0% for the first rise in three quarters after dropping a revised 3.8% previously.
The number of visitors from other countries has continued to pick up in the absence of strict Covid border control, leading to higher spending by foreign visitors, which is counted among Japanese exports of services. By contrast, exports of goods have been slower to recover, except for shipments of automobiles thanks to improving supply chains.
Private Inventories Trim GDP Growth, Public Works Spending Down
Private sector inventories are forecast to have provided a negative 0.3-point contribution to the second quarter GDP, unrevised from the initial estimate, after pushing down the second quarter GDP by a revised 0.1 percentage point.
Of the nine economists, seven forecast no revision, one expected an upward revision to a 0.2-point drop and another one saw a slight 0.1-point fall.
Public works spending is expected to have marked its first quarterly drop in six quarters, down 0.5% on the quarter in July-September and unrevised from the initial reading. Forecast ranges from a downward revision to a 1.2% drop to an upward revision to a 0.3% fall.
The effects of earlier spending funded by the supplementary budget for fiscal 2022 that ended in March had run its course. It followed a 0.3% rise in April-June.
Public investment made zero contribution (minus 0.0 point) to the third quarter GDP after providing zero contribution (plus 0.0 point) in the previous quarter.
Price Pressures Accelerate on Year, Ease on Quarter
In the preliminary GDP data, the unadjusted deflator surged 5.1% on the year in July-September after rising 3.5% in April-June. It was due to a 7.8% plunge in the import deflator following a revised 3.1% drop in the previous quarter. The pace of increase in the domestic demand deflator was steady at 2.4% after easing from 2.8% in the first quarter.
The seasonally adjusted deflator rose 0.5% on quarter after rising 1.4% in the second quarter, with the domestic deflator growing at slower pace of 0.3% after rising 0.5% previously. The import deflator rose 1.9% in the third quarter after falling a revised 2.8% in the prior quarter.