| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Quarter over Quarter | 0.2% | 0.1% to 0.4% | 0.0% | 0.2% |
| Annual Rate | 0.8% | 0.2% to 1.5% | 0.1% | 0.6% |
| Year over Year | 0.6% | 0.5% to 0.6% | 0.4% | 0.6% |
Highlights
The modest rebound in Japan's economic activity in the October-December quarter was unexpectedly revised down to zero growth as the pickup in consumer spending was slower than initially estimated and a large drop in private-sector inventories pushed down domestic demand, mitigating the impact of firmer-than-expected external demand, Cabinet Office data released Thursday showed.
The real gross domestic product was flat (+0.0 percent) on quarter in the final quarter of 2022, revised down from the initial estimate of a 0.2 percent rise, with its annualized growth rate revised down sharply to 0.1 percent from 0.6 percent. The revision was much weaker than the median economist forecast of a 0.2 percent rise or an annualized 0.8 percent gain. The forecasts ranged from increases of 0.1 percent to 0.4 percent, or an annualized pace of 0.2 percent to 1.5 percent.
The flat performance in the fourth quarter GDP followed a contraction by an unrevised 0.3 percent on quarter, or an annualized 1.1 percent (revised down from 1.0 percent) in the third quarter. The rebound lacked strength due to a sharp reduction in private sector inventories. Eased Covid rules and travel subsidies supported consumption in October-December while net exports rose after a one-time surge in service imports caused an unexpected contraction in July-September.
The Econoday Consensus Divergence Index stood at plus 2, just above zero, which indicates the Japanese economy is performing only slightly better than expected. Excluding the impact of inflation, the index was at plus 10. Japanese policymakers have said the domestic economy needs fiscal and monetary policy support as the output gap remains in negative territory.
Looking ahead, economic growth in January-March may remain sluggish in the face of slowing global demand following last year's aggressive monetary tightening by some central banks aimed at bringing high inflation back to target.
Sentiment Picking Up but Rising Costs a Damper
Domestic demand is likely to be supported by consumer spending on goods and services as the economy continues to reopen, but the purchasing power of many households has been reduced by rising costs for daily necessities and falling real wages.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Feb. 25 to Feb. 28 and released Wednesday, indicated that confidence picked up sharply in February as the economy continued reopening and anti-Covid public health rules were scheduled to be eased further in March. The outlook was mixed, however, as some firms found it hard to fully pass higher producer costs onto customers.
The Watchers' sentiment index showing the direction of Japan's current economic climate posted its first monthly rise in four months, surging 3.5 points to an eight-month high of 52.0 in February, on a seasonally adjusted basis, from a five-month low of 48.5 in January. The index popped above the key 50 line for the first time since it rose to 50.8 in October, but it is still below the 16-year high of 58.3 hit in December 2021.
The Watchers' outlook index, which shows sentiment in two to three months, marked its third consecutive increase, rising 1.5 points to a nine-month high of 50.8 in February after jumping 2.5 points to 49.3 in January.
The Cabinet Office estimates that the GDP would have to grow at a high pace of 2.06 percent on quarter, or an annualized 8.5 percent, in the January-March quarter for the economy to hit the official forecast of 1.7 percent growth for fiscal 2022, which seems to be unlikely given the quarterly growth has been limited to just above 1 percent in the past two years.
The economy grew a real 2.6 percent in fiscal 2021 that ended in March 2022, just in line with the official economic forecast of 2.6 percent growth. It was the first increase in three years after shrinking 4.1 percent in fiscal 2020 and 0.8 percent in fiscal 2019 and edging up 0.2 percent in fiscal 2018.
Consumption Growth Unexpectedly Revised Down
Private consumption, which accounts for about 55 percent of GDP, rose 0.3 percent (revised down from an initial 0.5 percent) on quarter in the fourth quarter after being unchanged in the third quarter and rising a downwardly revised 1.6 percent in the second quarter. Consumption pushed up the GDP by 0.2 percentage point (revised down from 0.3 point) after making zero contribution to the total domestic output in the previous quarter.
In the absence of strict public health rules for the first time in three years, many households continued spending on domestic travel, using the government's discount program launched in October, while some people were cautious about stepping out as the numbers of coronavirus infections and deaths surged toward yearend in the eighth wave of the pandemic in Japan.
No Revision to Capex Drop
Business investment in equipment marked its first drop in three quarters in October-December, down an unrevised 0.5 percent on quarter, following solid gains of 1.5 percent in July-September and 2.1 percent in April-June. Capex trimmed the GDP by an unrevised 0.1 percentage point in the fourth quarter after providing a positive 0.3-point contribution in each of the previous two quarters.
External Demand Picks Up After Q3 Surge in Service Payments
External demand was unexpectedly revised up but only slightly. Net exports of goods and services -- exports minus imports -- made a positive 0.4 percentage point contribution (revised up from 0.3 point) to the total domestic output in the fourth quarter after pushing down the GDP by a sharp 0.6 point in the third quarter.
Japanese exports posted a fifth straight quarterly gain, up 1.5 percent (revised up from 1.4 percent), in October-December, with the pace of increase decelerating from 2.5 percent in July-September. Imports marked their first drop in five quarters, down a slight 0.4 percent, after a 5.5 percent surge in the previous quarter led by service payments.
Drop in Private Inventories Pulls Down GDP; Public Works Revised Up
Private-sector inventories provided a negative 0.5 percentage point contribution to the October-December GDP, as seen in the preliminary data, after pushing up the third quarter GDP by 0.1 point. Forecasts for the second reading ranged from 0.6 percent to 0.3 percent decreases. Companies appeared to have used built-up inventories to meet shipment needs.
Public works spending recorded a 0.3 percent drop (revised up from a 0.5 percent fall) on the quarter in October-December after rising 0.7 percent in July-September and marking its first quarter-on-quarter rise in five quarters, up 0.6 percent, in April-June, when the government implemented projects included in the supplementary budget from the previous 2021 fiscal year. It was forecast to be revised up to a slight 0.1 percent dip (forecasts ranged from a 0.3 percent drop to a 0.1 percent rise).
Public investment trimmed the fourth-quarter total domestic output only slightly by a negative 0.0 percentage point after making zero contribution to the GDP in each of the previous two quarters.
The real gross domestic product was flat (+0.0 percent) on quarter in the final quarter of 2022, revised down from the initial estimate of a 0.2 percent rise, with its annualized growth rate revised down sharply to 0.1 percent from 0.6 percent. The revision was much weaker than the median economist forecast of a 0.2 percent rise or an annualized 0.8 percent gain. The forecasts ranged from increases of 0.1 percent to 0.4 percent, or an annualized pace of 0.2 percent to 1.5 percent.
The flat performance in the fourth quarter GDP followed a contraction by an unrevised 0.3 percent on quarter, or an annualized 1.1 percent (revised down from 1.0 percent) in the third quarter. The rebound lacked strength due to a sharp reduction in private sector inventories. Eased Covid rules and travel subsidies supported consumption in October-December while net exports rose after a one-time surge in service imports caused an unexpected contraction in July-September.
The Econoday Consensus Divergence Index stood at plus 2, just above zero, which indicates the Japanese economy is performing only slightly better than expected. Excluding the impact of inflation, the index was at plus 10. Japanese policymakers have said the domestic economy needs fiscal and monetary policy support as the output gap remains in negative territory.
Looking ahead, economic growth in January-March may remain sluggish in the face of slowing global demand following last year's aggressive monetary tightening by some central banks aimed at bringing high inflation back to target.
Sentiment Picking Up but Rising Costs a Damper
Domestic demand is likely to be supported by consumer spending on goods and services as the economy continues to reopen, but the purchasing power of many households has been reduced by rising costs for daily necessities and falling real wages.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Feb. 25 to Feb. 28 and released Wednesday, indicated that confidence picked up sharply in February as the economy continued reopening and anti-Covid public health rules were scheduled to be eased further in March. The outlook was mixed, however, as some firms found it hard to fully pass higher producer costs onto customers.
The Watchers' sentiment index showing the direction of Japan's current economic climate posted its first monthly rise in four months, surging 3.5 points to an eight-month high of 52.0 in February, on a seasonally adjusted basis, from a five-month low of 48.5 in January. The index popped above the key 50 line for the first time since it rose to 50.8 in October, but it is still below the 16-year high of 58.3 hit in December 2021.
The Watchers' outlook index, which shows sentiment in two to three months, marked its third consecutive increase, rising 1.5 points to a nine-month high of 50.8 in February after jumping 2.5 points to 49.3 in January.
The Cabinet Office estimates that the GDP would have to grow at a high pace of 2.06 percent on quarter, or an annualized 8.5 percent, in the January-March quarter for the economy to hit the official forecast of 1.7 percent growth for fiscal 2022, which seems to be unlikely given the quarterly growth has been limited to just above 1 percent in the past two years.
The economy grew a real 2.6 percent in fiscal 2021 that ended in March 2022, just in line with the official economic forecast of 2.6 percent growth. It was the first increase in three years after shrinking 4.1 percent in fiscal 2020 and 0.8 percent in fiscal 2019 and edging up 0.2 percent in fiscal 2018.
Consumption Growth Unexpectedly Revised Down
Private consumption, which accounts for about 55 percent of GDP, rose 0.3 percent (revised down from an initial 0.5 percent) on quarter in the fourth quarter after being unchanged in the third quarter and rising a downwardly revised 1.6 percent in the second quarter. Consumption pushed up the GDP by 0.2 percentage point (revised down from 0.3 point) after making zero contribution to the total domestic output in the previous quarter.
In the absence of strict public health rules for the first time in three years, many households continued spending on domestic travel, using the government's discount program launched in October, while some people were cautious about stepping out as the numbers of coronavirus infections and deaths surged toward yearend in the eighth wave of the pandemic in Japan.
No Revision to Capex Drop
Business investment in equipment marked its first drop in three quarters in October-December, down an unrevised 0.5 percent on quarter, following solid gains of 1.5 percent in July-September and 2.1 percent in April-June. Capex trimmed the GDP by an unrevised 0.1 percentage point in the fourth quarter after providing a positive 0.3-point contribution in each of the previous two quarters.
External Demand Picks Up After Q3 Surge in Service Payments
External demand was unexpectedly revised up but only slightly. Net exports of goods and services -- exports minus imports -- made a positive 0.4 percentage point contribution (revised up from 0.3 point) to the total domestic output in the fourth quarter after pushing down the GDP by a sharp 0.6 point in the third quarter.
Japanese exports posted a fifth straight quarterly gain, up 1.5 percent (revised up from 1.4 percent), in October-December, with the pace of increase decelerating from 2.5 percent in July-September. Imports marked their first drop in five quarters, down a slight 0.4 percent, after a 5.5 percent surge in the previous quarter led by service payments.
Drop in Private Inventories Pulls Down GDP; Public Works Revised Up
Private-sector inventories provided a negative 0.5 percentage point contribution to the October-December GDP, as seen in the preliminary data, after pushing up the third quarter GDP by 0.1 point. Forecasts for the second reading ranged from 0.6 percent to 0.3 percent decreases. Companies appeared to have used built-up inventories to meet shipment needs.
Public works spending recorded a 0.3 percent drop (revised up from a 0.5 percent fall) on the quarter in October-December after rising 0.7 percent in July-September and marking its first quarter-on-quarter rise in five quarters, up 0.6 percent, in April-June, when the government implemented projects included in the supplementary budget from the previous 2021 fiscal year. It was forecast to be revised up to a slight 0.1 percent dip (forecasts ranged from a 0.3 percent drop to a 0.1 percent rise).
Public investment trimmed the fourth-quarter total domestic output only slightly by a negative 0.0 percentage point after making zero contribution to the GDP in each of the previous two quarters.
Market Consensus Before Announcement
The second estimate of Japan's gross domestic product for the October-December quarter is likely to be little changed from the preliminary report: The economy rebounded an unrevised 0.2 percent on quarter while its annualized growth rate is expected to be revised up slightly to 0.8 percent from 0.6 percent. Public works spending is forecast to be revised up to a 0.1 percent dip from an initial 0.5 percent drop.
The rebound in the fourth quarter GDP followed a contraction by 0.3 percent on quarter, or an annualized 1.0 percent in the third quarter. Eased Covid rules and travel subsidies supported consumption while net exports rose after a one-time surge in service imports caused an unexpected contraction in July-September. The rebound lacked strength due to a sharp reduction in private sector inventories whose negative 0.5 percentage point contribution is expected to be unrevised.
The rebound in the fourth quarter GDP followed a contraction by 0.3 percent on quarter, or an annualized 1.0 percent in the third quarter. Eased Covid rules and travel subsidies supported consumption while net exports rose after a one-time surge in service imports caused an unexpected contraction in July-September. The rebound lacked strength due to a sharp reduction in private sector inventories whose negative 0.5 percentage point contribution is expected to be unrevised.
Definition
Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.
Description
Gross domestic product is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.
