By Max Sato
(MaceNews) – Japan’s gross domestic product for the October-December quarter is forecast to post its third consecutive growth but a sluggish 0.3% rise on quarter, or an annualized 1.3%. The main growth driver came from a rebound in net exports that was caused by a fall in imports and masks weak exports while consumer spending slumped amid high costs and depressed real wage growth.
The Cabinet Office will release preliminary GDP data for the final quarter of 2024 at 0850 JST on Monday, Feb. 17 (2350 GMT/1850 EST Sunday, Feb. 16).
China is struggling to recover from the property market slump and demand for Japanese vehicles and construction machinery in the U.S. market is fading under the weight of high borrowing costs. From a year earlier, Japan’s GDP is forecast to have posted the second straight increase, up 0.6%, after rising 0.5% in Q3 and falling 0.9% in Q2.
Many households in Japan remained frugal toward the end of the year amid surging food prices in light of lingering domestic rice shortages and weak yen-induced high import costs as well as elevated utilities after the government ended subsidies aimed at reducing air conditioning costs during the protracted hot and humid weather into the fall.
Business investment is seen picking up from a slip in July-September but not strong enough to lead Japan’s Goldilocks economy in the face of global uncertainties heightened by U.S. President Donald Trump’s protectionist trade policy with stiff tariffs on the country’s close trading partners: Canada, Mexico and China.
Labor shortages and high materials costs are also hurting the construction industry in Japan and putting a damper on capital investment and public works spending, the latter of which is losing steam after the stimulative effects of supplementary budgets had run its course.
The expected modest GDP growth in the final quarter of 2024 would follow the 0.3% rise (annualized 1.2%) in the July-September quarter, when an unexpected slip in external demand amid sapping Chinese demand and global uncertainties was offset by surprisingly solid consumer spending on vehicles amid high costs for necessities and stormy Q3 weather. It would be slower than the 0.5% growth (annualized 2.2%) in April-June. The economy contracted 0.6% (annualized 2.2%) in the first three months of 2024.
Domestic demand is expected to provide zero contribution to total domestic output in Q4 after boosting the Q3 GDP by 0.5 percentage point while external demand (exports minus imports) is seen rebounding to add 0.3 point to the growth point after shedding Q3 GDP by 0.2 point.
Looking ahead, Japan’s economic growth in the January-March quarter is expected to remain subdued as consumers stay frugal and firms are still cautious about implementing their solid capex plans. Many firms’ plans to invest in new capacity are supported by demand for automation amid widespread labor shortages as well as government-led digital transformation and emission control.
Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Figures in the previous quarter are in parentheses:
GDP quarter over quarter: +0.3% (+0.3%); 3rd straight growth
GDP annualized: +1.3% (+1.2%); 3rd straight growth
GDP year over year: +0.6% (+0.5%); 2nd straight rise
Domestic demand: +0.0 point (+0.5 point); flat after two quarterly gains
Private consumption: -0.2% (+0.7%); 1st drop in 3 quarters
Business investment: +1.3% (-0.1%); 1st rise in 2 quarters
Public investment: -0.2% (-1.1%); 2nd straight drop
Private inventories: -0.2 point (+0.2 point); 1st rise in 2 quarters
Net exports (external demand): +0.3 point (-0.2 point); 1st rise in 4 quarters