–Consumption Resilient Thanks to Eased Covid Rules, Travel Support Program
–External Demand to Lead Growth as Impact of Q3 Service Import Surge Wanes
–Q4 Capex May be Down in Reaction to Strong Gains in Previous 2 Quarters
–Q1 GDP Growth Seen Led by Consumption but Inflation, Slowing Global Demand Remain Headwinds
By Max Sato
(MaceNews) – Japan’s gross domestic product for the October-December quarter is forecast by economists to post a solid 0.5% rebound on quarter, or an annualized 1.9% rise, as eased Covid rules and travel subsidies supported consumption while net exports are seen up after a one-time surge in service imports caused an unexpected contraction in July-September GDP.
The median forecast for Q4 real GDP growth is based on projections by 10 economists compiled by Mace News, which ranged from 0.2% to 0.7% on quarter, or 0.7% to 3.0% annualized.
The Cabinet Office will release preliminary GDP data for the final quarter of 2022 at 0850 JST Tuesday, Feb. 14 (2350 GMT/1850 EST Monday, Feb. 13).
The expected rebound in the Q4 GDP would follow 0.2% contraction on quarter, or an annualized 0.8%, in the third quarter, when high import costs for food and energy as well as a jump in service payments to other countries slashed net exports, dampening the effects of resilient business investment and consumer spending.
Looking ahead, economic growth in January-March may lose momentum 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.
On average, 36 economists polled by the Japan Center for Economic Research from Jan. 27 to Feb. 3 forecast the GDP would grow 1.28% at an annualized pace in the first quarter of 2023 and 0.91% in the second quarter on the assumption that Q4 GDP grew 2.43%, according to the center’s ESP Forecast released last week.
Consumption Propped Up by Travel Support
The median forecast for private consumption, which accounts for about 55% of GDP, is for a solid 0.5% increase on quarter in the fourth quarter (forecasts range from 0.3% to 0.8% gains) for a third straight increase following a slight 0.1% rise in the third 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.
Demand-side data showed the core measure of real average household spending (excluding housing, vehicles and remittance), a key indicator used in GDP calculation, rose 1.0% on quarter in October-December after slipping 1.0% in July-September and rebounding 2.0% in April-June from a 1.9% slump in January-March 2022.
The Bank of Japan’s supply-side Consumption Activity Index rebounded a seasonally adjusted 0.4% on quarter in the final quarter of 2023 after falling 0.5% in July-September after surging 2.4% in April-June. Figures exclude inbound tourism consumption but include outbound tourism spending.
Capex Seen Down After Strong Gains
By contrast, business investment in equipment is expected to post its first drop in three quarters in October-December, down 0.3% on quarter (forecasts range from a 0.8% drop % to a 0.7% rise), after rising 1.5% in July-September and 2.0%
in April-June and slipping 0.4% in January-March. The BOJ’s quarterly Tankan business survey released in December indicated solid capex plans for fiscal 2022 but some economists see a pullback after two quarters of strong gains.
Shipments of capital goods excluding transport equipment — a key indicator of business investment in equipment in GDP data — fell 7.1% on quarter in October-December after surging 13.1% in July-September, rising 1.3% in April-June and being flat in the first quarter of 2022.
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.
Net Exports to Post Rebound
The median forecast for net exports of goods and services — exports minus imports — is for a positive 0.4 percentage point contribution to total domestic output (forecasts range from 0.1- to 0.5-point gains) in the fourth quarter. In the previous quarter, the key measure of external demand trimmed the GDP by 0.6 point after adding a slight 0.1 point in April-June.
Economists expect Japanese exports to post a fifth straight quarterly gain in the October-December GDP data while forecasting a slight drop in imports after a 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.
The Bank of Japan’s real export index rose a seasonally adjusted 0.7% on quarter in October-December after rising 3.0% in July-September and slumping 3.3% in April-June. The export volume index calculated by the Cabinet Office plunged a seasonally adjusted 5.3% on the month in December after falling 2.0% in November and rising 0.9% in October.
Growth in Japanese export values lost steam further in December on slowing global demand as China struggles with a renewed spike in Covid infections and deaths, while lower energy markets and the yen’s slight rebound also reduced import values, leading to a narrower trade deficit.
Private Inventories, Public Works Spending Seen Down
Private sector inventories are expected to have a negative 0.2-point contribution to the Q4 GDP (forecasts range from a 0.5-point drop to zero) after pushing up the Q3 GDP by 0.1 percentage point. Companies appeared to have used built-up inventories to meet shipment needs while factory production fell.