Business / Economy

Japan's January-March GDP upgraded but weak consumption still a concern

Kyodo

Economic growth was revised upward to an annualized real 2.2 percent in the January-March period thanks to an upswing in capital expenditure in the nonmanufacturing sector, government data showed Monday, though analysts continued to emphasize the risk of a downturn due to sluggish personal consumption.

The data released by the Cabinet Office, revising growth up from the preliminary estimate of a 2.1 percent expansion, did not change analysts’ view that the rise in GDP was due to a technical factor, with imports declining faster than exports and consequently pushing up real GDP.

In the three-month period, exports dropped 2.4 percent and imports sank 4.6 percent, as in the initial reading. As a result, net exports — exports minus imports — pushed up GDP by 0.4 percentage point.

The government maintains that the world’s third-largest economy is recovering moderately despite an uncertain global outlook amid growing trade tensions between China and the United States.

The result was largely in line with the average forecast for 2.0 percent growth by private-sector economists polled by Kyodo News.

The data came ahead of a planned hike of the consumption tax in October from 8 percent to 10 percent, a move that could dampen consumer spending.

The government has said it will go ahead with the tax increase unless the Japanese economy faces a shock on the scale of the global financial crisis triggered by the 2008 collapse of U.S. investment bank Lehman Brothers Holdings Inc.

Koya Miyamae, a senior economist at SMBC Nikko Securities Inc., said that the possibility of Prime Minister Shinzo Abe’s government postponing the tax increase appears to have decreased further given the latest January-March GDP data.

But he said Abe’s decision is likely be a political one ahead of the House of Councilors election expected in July, suggesting the prime minister could view announcing a postponement as a way to boost the ruling coalition’s prospects in the vote.

“Perhaps it is wrong to link (possible) postponement of the consumption tax increase to the assessment of economy,” Miyamae said.

The growth in real GDP, the total value of goods and services produced in the country adjusted for inflation, corresponds to a 0.6 percent increase from the previous quarter.

Capital expenditure rose 0.3 percent from the previous quarter, improving from the preliminary reading of a 0.3 percent fall, due to stronger spending in the wholesale, retail and services sectors.

“(Capital spending in) the manufacturing sector remained sluggish amid concerns of Chinese economic slowdown,” a Cabinet Office official told reporters.

Private consumption, which accounts for more than half of the economy, dipped 0.1 percent, unchanged from the initial reading.

Many analysts believe the economy was not as strong as the GDP numbers show and that overall capital spending and personal consumption remained sluggish, posing a downturn risk to the Japanese economy.

In nominal terms, or unadjusted for price changes, Japan’s economy grew an annualized 3.4 percent, revised up from 3.3 percent. On a quarterly basis, nominal GDP rose 0.8 percent, the same pace as the preliminary reading.

The upward revision for the January-March period led to real GDP growth in fiscal 2018 being upgraded to 0.7 percent from 0.6 percent.