–Q4 Growth to Be Led by Sharp Upward Revision to Business Investment from Slight Drop
–Net Exports Rebound Seen Intact, Public Works May See Sharper Decline
–Q1 GDP Growth Expected to Be Weaker as Inflation Keeps Real Wages Down, Labor Shortages Linger
By Max Sato
(MaceNews) – Japan’s economy likely averted a second straight quarterly drop in October-December, and thus recession last year, as revised data for gross domestic product is expected to show modest growth, backed by a sharp upward revision to business investment and an unrevised rebound in net exports, offsetting the drag from declines in consumption and public works.
The Cabinet Office will release the revised (second preliminary) GDP data for the final quarter of 2023 at 0850 JST Monday, March 11 (2350 GMT/1950 EDT Sunday, March 10; note North America will switch to the daylight-saving time on its Sunday morning).
The real GDP is forecast to have expanded 0.3% on quarter in the fourth quarter, or an annualized 1.3%, revised up sharply from the initial estimate of a 0.1% slip (0.4% contraction annualized), according to the median forecasts by 10 economists compiled by Mace News. The forecasts ranged from increases of 0.2% to 0.4%, or an annualized pace of 0.7% to 1.8%.
Preliminary data released last month showed the economy unexpectedly posted a slight contraction of 0.1% on quarter, or an annualized 0.4%, much weaker than the consensus call of a 0.4% rebound (annualized 1.6%), pushing the economy into a mild recession amid elevated costs for daily necessities and uncertainty over global growth. GDP slumped 0.8%, or an annualized 3.3%, in the third quarter.
Based on the Ministry of Finance’s quarterly business survey released last week, economists expect capital investment will be revised up sharply from a small drop and the contribution of private sector inventories will be revised up to zero from a slight negative.
From a year earlier, the economy is forecast to have grown 1.5% in October-December, revised up from a preliminary 1.0% rise, for an 11th consecutive rise following a 1.7% increase in July-September.
Looking ahead, however, the economy in the first quarter of 2024 is expected to post only a slight increase close to zero as consumers remain frugal to cope with elevated costs for daily necessities and some industries including hotels, restaurants and transport firms are losing business opportunities amid widespread labor shortages.
Domestic Demand Drop Seen Revised Up; Consumption Remains Down
Domestic demand is expected to have raised the fourth quarter GDP by 0.2 percentage point (forecasts ranged from zero to plus 0.3 point), instead of lowering it by 0.3 point as seen in the preliminary data. It would be the first increase in three quarters.
Private consumption, which accounts for about 55% of GDP, fell 0.2% on quarter in the fourth quarter preliminary data and it is expected to be unrevised (two economists forecast a downward revision to a 0.3% drop). It would be the third consecutive quarterly decline. Consumption trimmed the GDP by 0.1 point in the preliminary data after making a negative 0.2-point contribution in the previous quarter.
Capex Seen Revised Up Sharly
Business investment in equipment is forecast to surge 2.5% on quarter in October-December (forecasts ranged from 0.7% to 3.8% increases), a sharp upward revision from the initial reading of a 0.1% slip, which was the third straight drop. Capex made a preliminary zero (minus 0.0 point) contribution after providing a negative 0.1-point contribution the previous quarter.
Firms have been generally cautious about implementing their solid 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 a large expansion in business investment backed by continued solid growth in sales and profits.
Net Export Rebound Seen Unrevised
Net exports of goods and services — exports minus imports — are expected to make a positive 0.2 percentage point contribution to the total domestic output, as reported last month. In the previous quarter, the key measure of external demand provided zero (minus 0.0 point) contribution to the GDP.
The preliminary data showed that Japanese exports of goods and services posted the third straight increase on quarter, up 2.6% in the October-December quarter GDP, after edging up 0.9% in September-July. Imports rose 1.7% after rising 1.0% in the third quarter and slumping 3.6% in the second quarter.
The number of visitors from other countries has recovered to pre-Covid levels and their spending is counted as Japanese exports of services. By contrast, exports of goods have been sluggish amid weak tones in the European and Chinese economies and despite solid demand for Japanese automobiles, particularly in the U.S. where economic growth has been stronger than expected.
Private Inventories Seen Flat, Public Works Drop to Be Revised Down
Private sector inventories are forecast to have provided zero (plus 0.0 point) contribution to the fourth quarter GDP, little changed from the initial estimate of minus 0.0 point, after pushing down the third quarter GDP by 0.5 percentage point.
Public works spending marked a second straight quarterly decline in October-December and is expected to be revised down to a 0.8% drop from a preliminary 0.7% decline. Forecast ranges from 1.5% to 0.3% decreases. It would follow a 1.0% fall in July-September and a 2.2% rise in April-June.
The effects of earlier spending funded by the supplementary budget for fiscal 2022 that ended in March had run its course.
Public investment made zero contribution (minus 0.0 point) to the fourth quarter GDP after providing a negative 0.1-point contribution (plus 0.0 point) in the third quarter.
Price Pressures Slows in Q4
In the preliminary GDP data, the unadjusted deflator rose 3.8% on year in October-December after surging 5.2% in July-September. The slower increase was due to a smaller 3.7% fall in the import deflator following a 7.4% slump in the previous quarter. The pace of increase in the domestic demand deflator decelerated to 2.0% from 2.5%.
The seasonally adjusted deflator edged up 0.4% on quarter after rising 0.8% in the third quarter, with the domestic demand deflator growing at the same pace of 0.4%, as seen previously. The import deflator rose 2.2% after rising 1.4% in the prior quarter.