–Modest Q3 Growth Seen Led by Solid Capex Demand, No Strict Public Health Rules
–Net Exports Seen Down amid Global Slowdown, Rising Import Costs
–Q4 GDP Growth Likely Backed by Govt Subsidies for Tourism, Eased Border Restrictions
By Max Sato
(MaceNews) – Japan’s gross domestic product for the July-September quarter
is forecast by economists to post a modest 0.4% increase on quarter, or an annualized 1.6% rise, as the government refrained from urging strict public health rules despite a spike in new Covid cases to record highs but net exports likely fell amid slowing global growth and surging import costs.
The median forecast for Q3 GDP growth is based on projections by 10 economists compiled by Mace News, which ranged from 0.1% to 0.6% on quarter, or 0.5% to 2.4% annualized.
The Cabinet Office will release preliminary GDP data for the third quarter of 2022 at 0850 JST Tuesday, Nov. 15 (2350 GMT/1850 EST Monday, Nov. 14).
The expected fourth consecutive growth in Q3 would be slower than a 0.9% gain on the quarter, or an annualized 3.5% rise, in April-June, when pent-up demand for dining out and traveling under eased public health restrictions boosted consumption and business investment was stronger than expected, mitigating the effects of lingering supply bottlenecks that were exacerbated by China’s two-month lockdown of Shanghai through the end of May.
Looking ahead, economic growth in October-December may pick up some pace but its outlook remains uncertain as global growth is slowing amid aggressive tightening by some central banks. The eighth wave of the pandemic is also emerging in many parts of Japan after the previous wave led to record numbers of infections from late July to late August. The prices for energy, food and durable goods continue rising as the weak yen is adding to already high import costs.
On average, 36 economists polled by the Japan Center for Economic Research from Sept. 27 to Oct. 4 forecast the GDP would grow 2.18% at an annualized pace in the October-December quarter before slowing to just over 1% in each quarter of 2023, according to the center’s ESP Forecast released on Oct. 11.
Slower Consumption
The median forecast for private consumption, which accounts for about 55% of GDP, is for a 0.2% increase on quarter in the third quarter (forecasts range from a 0.2% drop to a 0.6% rise) following a 1.2% surge in the second quarter and a 0.3% gain in January-March.
The seventh wave of the pandemic in Japan had subsided by early September but for the whole of the quarter, some people including seniors were cautious about eating out or traveling. Employment conditions improved but the average household income slumped in real terms amid rising costs for daily necessities.
Demand-side data showed the core measure of real average household spending (excluding housing, vehicles and remittance), a key indicator used in GDP calculation, dropped 1.0% on quarter in July-September after rebounding 2.0% in April-June from a 1.9% plunge in January-March.
The Bank of Japan’s supply-side Consumption Activity Index rose a real 1.7% on the month in September on a seasonally adjusted basis after falling in the previous two months (-1.1% in August and -0.6% in July), but dipped 0.4% on quarter in July-September after surging 2.4% in April-June and slumping 2.7% in the first three months of the year, when the Omicron variant first caused a spike in Covid cases. Figures exclude inbound tourism consumption but include outbound tourism spending.
Solid Capex Demand
Business investment in equipment is expected to show continued upward momentum in July-September with a 2.0% rise (forecasts range from 1.5% to +4.0% gains) after growing at the same rate in April-June and slipping 0.1% in January-March. The Bank of Japan’s quarterly Tankan survey for September showed companies revised up their capex plans for fiscal 2022 ending next March.
Some capex plans are being carried over from fiscal 2021 that ended in March, when the economy was hit by the wintertime spike in Covid cases and supply delays were aggravated by the Ukraine war. Capex is generally supported by demand for automation, government-led digital transformation and emission control.
Shipments of capital goods excluding transport equipment – a key indicator of capex in GDP data – soared 13.1% in the third quarter, marking the second straight rise after rising 1.3% in the second quarter, being flat in the first quarter and falling 1.5% in the final quarter of 2021.
Weaker External Demand as Imports Surge
The median forecast for net exports of goods and services – exports minus
imports – is for a negative 0.3 percentage point contribution to total domestic output (forecasts range from a 0.5%-point drop to a 0.1-point rise) in the third quarter. In the previous quarter, the key measure of external demand raised the GDP by a slight 0.1 point after lowering it by 0.5 point for the first negative contribution in three quarters.
Economists expect Japanese exports to post a fourth straight quarterly gain in the July-September GDP data but also forecast a faster pace of increase in imports as the prices for food and energy remain elevated and the depreciation of the yen is boosting import costs.
Private Inventories Seen Flat, Public Works Up
In other details, private sector inventories are expected to have provided zero contribution to the Q3 GDP (forecasts range from a 0.2-point drop to a 0.1-point rise) after pushing down the Q2 GDP by 0.3 percentage point. Companies appeared to have used built-up inventories to meet shipment needs.