–Sharp Drop in Private Inventories, Capex Pullback Behind Lackluster Q4 Growth
–Consumption Solid on Eased Covid Rules, Travel Subsidies After Flat Growth in Q3
–Q4 Net Exports Rebound After Q3 Slump Caused by Surge in Service Payments
–Q1 GDP Seen Supported by Consumption Amid Weaker Exports
By Max Sato
(MaceNews) – The slight rebound in Japan’s economy for the October-December quarter is expected to show only limited revisions from the initial reading as public works spending is likely to be revised up slightly while weakness in business investment is being offset by solid consumer spending.
The real gross domestic product is forecast to have risen 0.2% on quarter in the final quarter of 2022, unrevised from the initial estimate, with its annualized growth rate seen revised up slightly to 0.8% from 0.6%, according to the median forecasts by 10 economists compiled by Mace News. The forecasts ranged from increases of 0.1% to 0.4%, or an annualized pace of 0.2% to 1.5%.
The rebound in the fourth quarter GDP followed a contraction by 0.3 percent on quarter, or an annualized 1.0 percent in the third quarter. The rebound was limited by a sharp reduction in private sector inventories. Eased Covid rules and travel subsidies supported consumption in October-December while net exports rose after a one-time surge in service imports caused an unexpected contraction in July-September.
The Cabinet Office will release the revised (second preliminary) GDP data for the fourth quarter at 0850 JST Thursday, March 9 (2350 GMT/1850 EST Wednesday, March 8).
Looking ahead, economic growth in January-March may remain sluggish in the face of slowing global demand following last year’s aggressive monetary tightening by some central banks aimed at bringing high inflation back to target. Domestic demand is likely to be supported by consumer spending on goods and services as the economy continues to reopen, but the purchasing power of many households has been reduced by rising costs for daily necessities and falling real wages.
Solid Consumption Growth Seen Unrevised
Private consumption, which accounts for about 55% of GDP, is forecast to show an unrevised 0.5% rise on quarter in the fourth quarter after being unchanged in the third quarter and rising 2.0% in the second quarter. Consumption pushed up the GDP by 0.3 percentage point after making zero contribution to the total domestic output in the previous quarter.
In the absence of strict public health rules for the first time in three years, many households continued spending on domestic travel, using the government’s discount program launched in October, while some people were cautious about stepping out as the numbers of coronavirus infections and deaths surged toward yearend in the eighth wave of the pandemic in Japan.
No Revision to Capex Drop Expected
By contrast, business investment in equipment marked its first drop in three quarters in October-December, down a weaker-than-expected 0.5% on quarter
rise), following solid gains of 1.5% in July-September and 2.1% in April-June.
This initial estimate is expected to be unrevised, judging from the results of a quarterly business survey conducted by the Ministry of Finance released last week, although economists are divided. Some forecast it will turn out to be firmer in a range of 0.2% to 0.4% drops while others see a downward revision ranging from 0.6% to 0.8% declines.
The demand-side survey by the MOF showed that combined capital investment by non-financial Japanese companies rose 7.7% on year in the October-December quarter, slowing from a 9.8% increase in July-September but faster than a 4.6% rise in April-June. On quarter, combined capital outlays gained a seasonally adjusted 0.5% after rising 2.3% in the previous quarter.
The capex figures in the preliminary GDP calculation are based solely on supply
side data.
Capex trimmed the GDP by 0.1 percentage point in the fourth quarter after providing a positive 0.3-point contribution in each of the previous two quarters.
Business investment is generally supported by demand for automation, government-led digital transformation and emission control.
External Demand Picks Up After Q3 Surge in Service Payments
No revisions are expected to external demand. In the preliminary data, net exports of goods and services — exports minus imports — made a positive 0.3 percentage point contribution to the total domestic output in the fourth quarter after pushing down the GDP by a sharp 0.6 point in the third quarter.
Japanese exports posted a fifth straight quarterly gain, up 1.4%, in October-December, with the pace of increase decelerating from 2.5% in July-September. Imports marked their first drop in five quarters, down a slight 0.4%, after a 5.5% surge in the previous quarter led by service payments.
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 as exports.
Private Inventories Dip, Public Works Seen Revised Up
Private sector inventories are forecast to have provided a negative 0.5 percentage point contribution to the October-December GDP, as seen in the preliminary data, after pushing up the third quarter GDP by 0.1 point. Forecasts for the second reading ranged from 0.6% to 0.3% decreases. Companies appeared to have used built-up inventories to meet shipment needs.
Public works spending recorded a 0.5% drop on the quarter in October-December after rising 0.7% in July-September and marking its first quarter-on-quarter rise in five quarters, up 0.5%, in April-June, when the government implemented projects included in the supplementary budget from the previous 2021 fiscal year. It is forecast to be revised up to a slight 0.1% dip (forecasts ranged from a 0.3% drop to a 0.1% rise).
In the preliminary data, trimmed the fourth-quarter total domestic output only slightly (negative 0.0 percentage point) after making zero contribution to the GDP in each of the previous two quarters.