Business / Economy

Japan's fourth-quarter GDP upgraded, but business conditions index continues downtrend

Kyodo, Bloomberg

Japan’s economy grew an annualized real 1.9 percent in the October-December period, upgraded from preliminary data thanks to an upswing in capital expenditure, the government said Friday.

The reading showed the world’s third-largest economy had rebounded after a string of natural disasters caused a contraction the previous quarter, although economists remained cautious following a downgrade by the Cabinet Office the previous day of another key economic indicator.

Friday’s upgrade was largely in line with the average forecast, for 1.8 percent growth, that had been made by private-sector economists polled by Kyodo News. Compared with the previous quarter, real gross domestic product — the total value of goods and services produced in the country adjusted for inflation — grew 0.5 percent, according to the data from the Cabinet Office.

Capital expenditure increased 2.7 percent from the previous quarter as manufacturers of telecommunications equipment and production machinery ramped up spending.

Private consumption, which accounts for more than half of the national economy, rose just 0.4 percent, downgraded from the preliminary 0.6 percent growth, as tepid wage gains kept households from spending more freely.

Net exports, falling amid slowing demand from China, pushed down real GDP by 0.3 percentage point. Public investment fell 1.7 percent, downgraded from the 1.2 percent fall initially reported.

In nominal terms, or unadjusted for inflation, GDP rose an annualized 1.6 percent or 0.4 percent on a quarterly basis.

The upward revision for the October-December period led to an upgrade to real GDP growth in 2018 from 0.7 percent to 0.8 percent.

Japan’s economy needed all the momentum it could get heading into 2019, with early data for the current quarter suggesting growth will be hit hard by the slowdown in China, the U.S.-China trade war and a softening tech cycle.

The recent pattern of expansion and contraction in the economy is not the stable growth path Prime Minister Shinzo Abe would like to see in the run-up to a demand-sapping sales-tax hike later this year.

The upward revision in GDP growth had been expected by economists given stronger-than-expected capital expenditure figures for the quarter released last week. But those figures also showed very little quarterly growth in business spending outside the manufacturing sector.

The figures didn’t prompt a rethink among economists, who are increasingly concerned about the current quarter and the possibility of the economy contracting or, even worse, slipping into a recession ahead.

Worries about a possible recession were prompted by government data released Thursday, which downgraded its assessment of a key indicator of economic trends.

The Cabinet Office’s coincident index of business conditions for January was down 2.7 points from the previous month at 97.9 against the 2015 base of 100. It was the index’s third consecutive decline, prompting the office to say that it was “signaling a possible turning point.” Prior to that, the office had said conditions were “weakening.”