By Max Sato
(MaceNews) – Lukewarm economic growth lingered during much of 2024 in Japan after three quarters of drops but consumption is chilled by high living costs and the outlook for the world’s top two economies is clouded by Trump tariffs, pointing to a flat performance in the first quarter of 2025, with the risk of a slight contraction.
Japan’s economic growth pickup to 0.7% on quarter, or an annualized 2.8%, in the October-December period from +0.4% q/q (+1.7% annualized) in July-September is forecast to show no or only a limited revision in the second reading.
The Cabinet Office will release revised GDP data for the final quarter of 2024 at 0850 JST on Tuesday, March 11 (2350 GMT/1950 EST Monday, March 10). The median projection of Q4 GDP growth by 10 economists in a Mace News poll is 0.7% (forecasts range from 0.5% to 0.8%), or an annualized 2.8% (2.2% to 3.0%).
The preliminary Q4 GDP data released last month showed the much stronger-than-expected growth was largely due to a technical rebound in net exports, up 0.7 percentage point (after four quarters of drops), that was caused by a sharper-than-expected slump in imports and masks weak exports. Domestic demand trimmed total domestic output by 0.1 point in Q4 after boosting the Q3 GDP by 0.5 point, underscoring the wobbly recovery.
The contributions from both domestic and external demand are seen unrevised. The rebound in business investment in equipment after a Q3 drop is forecast to be revised down to +0.3% q/q from the initial reading of +0.5% while the second straight quarterly drop in public works spending is seen revised up slightly to -0.2% q/q from -0.3%.
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. Private consumption rose slightly instead of an expected slip, but remains sluggish amid high costs and depressed real wage growth.
In Q3, an unexpected slip in external demand amid sagging Chinese demand and global uncertainties was offset by surprisingly solid consumer spending on vehicles amid high costs for necessities and stormy weather. The Q4 performance more or less matched the 0.7% (annualized 3.0%) growth in Q2. Earlier, the economy suffered three consecutive contractions, shrinking 0.5% (-1.9%) in January-March 2024, 0.1% (-0.3%) in October-December and 0.9% (-3.6%) July-September 2023.
Looking ahead, Japan’s economic growth in the January-March quarter is expected to be at a standstill, posting near-zero growth or a slight contraction, as soaring prices of food and other necessities are hurting consumers at a time when real wages are set to slip back into year-on-year declines. Net exports (exports minus imports) are also expected to be dragged down by slowing U.S. demand and struggling Chinese recovery.
There remains strong demand to upgrade factories and offices among many industries but lingering labor shortages and high construction costs are hampering smooth implementation of capital investment. Growing uncertainties over the health of the U.S. economy and global trade could also slow capex.
President Donald Trump on Thursday suspended new tariffs on most imports from Canada and Mexico until April 2, two days after he imposed stiff 25% levies on two of the world’s largest economy’s closest partners (10% for Canadian energy). Trump has doubled the import duties that he slapped last month on Chinese products to 20%.
From a year earlier, Japan’s GDP posted a second straight increase in the final quarter of 2024, up 1.2%, after rising 0.6% in Q3 and falling 0.8% in Q2. It is expected to be revised up slightly to a 1.3% rise.
Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Preliminary figures are in parentheses.
GDP q/q +0.7% (+0.7%), 3rd straight growth
GDP annualized: +2.8% (+2.8%); 3rd straight growth
GDP y/y: +1.3% (+1.2%); 2nd straight rise
Domestic demand: -0.1 point (-0.1 point); 1st drop in 3 qtrs
Private consumption: +0.1% (+0.1%); 3rd straight rise
Business investment: +0.3% (+0.5%); 1st rise in 2 qtrs
Public investment: -0.2% (-0.3%); 2nd straight drop
Private inventories: -0.2 point (-0.2 point)
Net exports (external demand): +0.7 point (+0.7 point)