By Max Sato
(MaceNews) – Japan’s gross domestic product for the July-September quarter is forecast by economists to show a 0.2% slump on quarter, or an annualized 0.8% drop, as consumers were cautious amid a resurgence in coronavirus infections and global supply chain disruptions slowed business investment and exports.
The median forecast for Q3 GDP is based on projections by 10 economists compiled by Mace News, which ranged from -0.5% to +0.0% on quarter, or an annualized -2.2% to +0.1%.
The Cabinet Office will release preliminary GDP data for the third quarter at 0850 JST on Monday, Nov. 15 (1850 EST on Sunday, Nov. 14).
The expected contraction in the third quarter would be the first q/q drop in two quarters after the economy expanded 0.5%, or an annualized 1.9%, led by resilient consumer spending despite on-and-off restrictions on economic activity during the pandemic.
As the number of new Covid-19 cases drifted lower toward the end of September after a spike in August, household spending rebounded by 5.0% on the month in September, but it marked the first quarter-on-quarter dip in two quarters, down a sharp 4.7% in the July-September quarter.
The government lifted its state of emergency restrictions on Oct. 1 while urging people to maintain social-distancing and face-covering protocols. Municipalities are gradually easing strict rules on business hours and public events.
Against this backdrop, economists on average forecast GDP would rebound 4.93% at an annualized rate in October-December after contracting an estimated 0.56% in July-September, according to the monthly ESP Survey of 37 forecasters conducted by the Japan Center for Economic Research from Oct. 28 to Nov. 4 and released Wednesday.
The median forecast in the Mace News survey for private consumption, which accounts for about 55% of GDP, is for a 0.6% slip on quarter in Q3 (ranging from -1.0% to -0.1%) following a 0.9% rebound in Q2. The stay-home lifestyle during the pandemic initially boosted demand for furniture and electrical appliances but it seems to have run its course.
Also on the downside, the median forecast for business investment is a 0.8% drop on quarter in Q3 (ranging from -2.3% to +0.4%) after a 2.3% rebound in Q2.
The median forecast for net exports of goods and services – exports minus imports – is for zero contribution to total domestic output (ranging from -0.4 to +0.3 percentage points), after trimming 0.3 percentage point off the Q2 GDP, which was the second straight quarter of a negative contribution.
Protracted global semiconductor shortages and pandemic-caused delays in parts supply from Southeast Asia have forced automakers and electronics firms to reduce production and shipments. An estimated quarter-on-quarter decline in imports likely offset the recent slowdown in exports.
The Bank of Japan’s real export index slumped a seasonally adjusted 6.5% on month in September, the second straight drop (-3.7% in August, +1.4% in July). In the July-September quarter, the index dipped 2.8% on quarter after rising 3.4% in April-June for the first drop in five quarters.
Exports rose 13.0% in September for the seventh year-over-year rise in a row but the pace of increase decelerated further from 26.2% in August, 37.0% in July and 48.6% in June, according to the Ministry of Finance. It was the slowest pace during the current period of double-digit percentage gains that began in March.
Private sector inventories are expected to have provided a positive 0.1 percentage point contribution to the July-September GDP (forecasts ranged from -0.1 point to +0.3 point), after pushing down the April-June GDP by 0.3 percentage point. Weaker demand and logistical delays appear to have led a buildup in inventories.
Public works spending also appears to have stayed on a downtrend as the government has focused more on providing financial supports to individuals and businesses hit by the pandemic as well as importing Covid-19 vaccines. The median forecast for public investment is a 2.0% slump on quarter in Q3 (forecasts ranged from -2.8% to +0.4%) after a 1.7% drop in Q2 for a second consecutive decline.