Japan Q3 GDP slump revised down sharply on weaker capex

12, Dec. 2018

TOKYO, NNA – Japan’s economic contraction in the July-September quarter was revised down sharply to 0.6 percent on quarter, or an annualized 2.5 percent from the initial reading of 0.3 percent, or 1.2 percent annualized, as business investment was much weaker than previously estimated, the Cabinet Office said Monday.

Th revision, based mostly on a recent government survey on business activity for the quarter, was exactly in line with the median economist forecast.

The third-quarter slump in real GDP was the first in two quarters as a series of disasters dampened consumption and business investment posted the first drop in two years after surging in April-June, when the economy posted a strong rebound of 0.7 percent, or an annualized 2.8 percent (both revised down).

In July-September, capital investment plunged 2.8 percent on quarter, sharply revised down from the preliminary 0.2 percent dip, in payback for a revised 2.8 percent surge in the previous quarter, marking the first quarter-on-quarter drop since -0.3% in July-September of 2016. On an annualized basis, capex slumped 10.6 percent after rising 11.7 percent in the previous three months.

The decrease in capex alone pushed down the gross domestic product by 0.4 percentage point in the third quarter. In the preliminary data released last month, the negative contribution of capex to GDP was estimated to be flat with a slight negative bias (-0.0 percentage point).

In Monday’s data, private consumption, which accounts for about 60 percent of GDP, was also revised down to a decline of 0.2 percent on quarter, or an annualized 0.7 percent. Its negative contribution was unrevised at -0.1 percentage point.

On the other hand, the contribution of private-sector inventories to GDP was revised up to be neutral from -0.1 percentage point seen earlier.

Japanese business investment and profits slowed in the July-September quarter from the previous three months, hit by heavy rains and typhoons, government data released a week ago had shown.

Combined capital investment by non-financial Japanese companies rose 4.5 percent on year in July-September for the eighth straight quarterly gain, but the pace of increase decelerated from the 12.8 percent surge in April-June, according to a quarterly survey by the Ministry of Finance.

Capital outlays (excluding software) fell a seasonally adjusted 4.0 percent in Q3, marking the first quarter-on-quarter drop in five quarters after rising a revised 6.1 percent in Q2.

The MOF survey based on the demand side is the key to calculating revisions to GDP. Capex in preliminary GDP is based solely on supply side data.