PREVIEW: Japan Q1 GDP seen revised up slightly on capex

05, Jun. 2019

TOKYO, NNA - Japan's economic growth for the January-March quarter is likely to be revised up slightly, economists predict, as business investment in equipment appears to be firmer than initially estimated based on a government survey.

The median forecast by six economists for revised Q1 GDP is +0.6 percent quarter on quarter, or an annualized +2.2 percent, up slightly from the official preliminary reading of +0.5 percent q/q, and an annualized +2.1 percent, reported last month. The forecasts ranged from +0.5 percent to +0.7 percent q/q, and +1.9 percent to +2.7 percent annualized.

The Cabinet Office will release revised (second preliminary) GDP data for the January-March quarter on Monday.

The preliminary data showed Japan’s economic growth in the January-March quarter came in much stronger than forecast, at 0.5 percent, or an annualized 2.1 percent, but that was led by the first net-export gain in a year due to a sharp drop in imports and a smaller-than-expected decline in capital investment.

Exports slumped, posting the first quarter-on-quarter drop since July-September 2018, amid global uncertainty caused by the U.S.-China trade dispute.

In Q1, economists forecast capital investment will be revised up to a 0.5 percent rise q/q from a preliminary 0.3 percent drop, with forecasts ranging from +0.1 percent to +0.9 percent, based on the results of the Ministry of Finance's quarterly survey released on Monday.

Combined capital investment by non-financial Japanese companies rose 6.1 percent from a year earlier in the January-March quarter, after increasing 5.7 percent in October-December of 2018.

Capex excluding software increased 6.9 percent y/y in Q1, accelerating from a 5.5 percent increase in Q4. Combined capital outlays (excluding software) rose a seasonally adjusted 1.1 percent, marking the second straight y/y increase after rising 3.9 percent in the previous three months.

Economists expect private consumption, which accounts for about 60 percent of GDP, to remain unrevised at a 0.1 percent q/q decline. In the preliminary data, it was estimated to have made zero contribution to total domestic output.

The contribution of private-sector inventories to Q1 GDP is forecast to be unrevised at +0.1 percentage point.

Net exports of goods and services -- exports minus imports -- are expected to have made a positive 0.4 percentage point contribution to total domestic output, unrevised from the preliminary estimate.

On the downside, economists expect government investment to be revised down to a 1.1 percent increase q/q from a 1.5 percent rise.

Looking ahead, Japan's lukewarm economic growth is expected to lose some steam in the April-June quarter in light of sluggish exports and industrial production.