| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Quarter over Quarter | 1.3% | 1.3% to 1.4% | 1.2% | 1.5% |
| Annual Rate | 5.4% | 5.1% to 5.7% | 4.8% | 6.0% |
| Year over Year | 1.8% | 1.7% to 1.9% | 1.6% | 2.0% |
Highlights
Japan's strong economic growth led by a sharp rebound in net exports amid easing import costs in the April-June quarter was revised down as business investment in equipment, private consumption and public works spending all turned out to be weaker than initially estimated, Cabinet Office data released Friday showed.
Flat business investment was revised down to post the first drop in two quarters while public works spending showed only a modest rise, compared to robust growth estimated last month. Consumption slipped after pent-up demand boosted demand in the previous two quarters.
The real gross domestic product grew 1.2 percent on quarter in the second quarter of 2023, revised down from the initial estimate of a 1.5 percent jump, with its annualized growth rate revised down to 4.8 from 6.0 percent. The revised growth was below the median economist forecast of a 1.3 percent rise, or an annualized 5.4 percent gain. Growth forecasts ranged from increases of 1.3 percent to 1.4 percent, or an annualized pace of 5.1 percent to 5.7 percent.
It followed growth of 0.8 percent (revised down slightly from 0.9 percent) on quarter, or an annualized 3.2 percent (revised down from 3.7 percent) in January-March. An unexpectedly high increase in private-sector inventories was revised down but still led the first quarter growth with resilient consumer spending and business investment.
The annualized 4.8 percent growth in the second quarter is the highest among the Group of Seven major economies, well above the solid 2.1 percent increase in the U.S., the modest 1.0 percent rise in the Eurozone and a surprise slight contraction in Canada.
From a year earlier, the Japanese economy rose 1.6 percent (revised down from a 2.0 percent rise) in April-June, posting the ninth consecutive rise following a 2.0 percent rise in January-March.
The Econoday Consensus Divergence Index stood at minus 39, below zero, which indicates the Japanese economy is performing worse than expected. Excluding the impact of inflation, the index was at minus 50.
Japanese policymakers believe the domestic economy still needs fiscal and monetary policy support. The output gap has turned positive after more than three years of staying in negative territory. It marked a slightly positive 0.4 percentage point in the April-June quarter of 2023 after a negative 0.9 point in January-March. The last positive gap was plus 1.2 points in the third quarter of 2019.
Looking ahead, economic growth in July-September is expected to lose some steam in the face of slowing global demand and domestic labor shortages, but it is still likely to be shored up by resilient consumer spending, thanks to widespread wage hikes and an expected sharp increase in summer bonuses.
The Cabinet Office estimates that the real GDP would have to grow at about 0.29 percent on quarter, or an annualized 1.1 percent, in each of the remaining quarters through January-March 2024 for the economy to hit the official forecast of 1.3 percent growth for fiscal 2023.
The economy grew a real 1.4 percent in fiscal 2022, below the official forecast of a 1.7 percent rise. It followed a 2.7 percent gain in fiscal 2021, decreases of 4.1 percent in fiscal 2020 and 0.8 percent in fiscal 2019, and a 0.2 percent rise in fiscal 2018.
Domestic Demand Revised Down Sharply
Domestic demand trimmed the second quarter GDP by 0.6 percentage point (revised down from a negative 0.3 point), after boosting Q1 growth by a revised 1.1points. The decline was due to a fall in private consumption and a pullback in private inventories. The only positive contribution to domestic demand came from a sharp gain in housing investment. Public works spending supported growth in the preliminary data but it now shows zero contribution.
Private consumption, which accounts for about 55 percent of GDP, fell 0.6 percent on quarter in the second quarter, revised down slightly from an initial 0.5 percent drop and coming in weaker than the median forecast for an unrevised 0.5 percent fall. Elevated costs for daily necessities and durable goods weighed on many households. It is the first drop in three quarters following increases of 0.6 percent in the first quarter and a revised 0.3 percent in the fourth quarter of 2022 and a slight decline in the third quarter.
Consumption pushed down the GDP by 0.4 percentage point (revised down from a negative 0.3 point) after making a positive 0.3 contribution to the total domestic output in the previous quarter.
In the second quarter, households trimmed spending on non-durable goods, such as food, beverages and soap, as suppliers continued to raise prices to reflect elevated import and production costs seen earlier. Expenditures on durable goods posted the first drop in four quarters as durable goods prices were also marked up and some households had already purchased cars and electric appliances earlier. The quarterly decline in those two categories more than offset modest gains in spending on semi-durable goods (including clothing, footwear and bags) and services.
Capex Rebound Revised Down Sharply
Business investment in equipment was revised down to a 1.0 percent drop on quarter in April-June from the initial reading of being flat (up a marginal 0.03 percent). It followed an unexpected rebound, by a downwardly revised 1.6 percent, in January-March and a 0.7 percent drop in October-December. Some firms remain cautious about implementing their plans, although capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
Capex trimmed the GDP by 0.2 percentage point (compared to a preliminary zero contribution) after providing a positive 0.3-point contribution the previous quarter.
Based on the results of a quarterly business survey by the Ministry of Finance released last week, the median economist forecast was a downward revision to a 0.8 percent decrease (forecasts ranged from 1.1 percent to 0.3 percent drops).
The demand-side survey by the MOF showed that combined capital investment by non-financial Japanese companies rose 4.5 percent on year in the April-June quarter, slowing from a 11.0 percent increase in January-March. On quarter, combined capital outlays fell a seasonally adjusted 1.2 percent after rising 2.4 percent in the previous quarter. The capex figures in the preliminary GDP calculation are based solely on supply side data.
Net Exports Rebound as Imports Continue to Drop
Net exports of goods and services -- exports minus imports -- made a positive 1.8 percentage point contribution to the total domestic output, as reported last month. In the previous quarter, the key measure of external demand pushed down the GDP by 0.3 point after raising it by a revised 0.3 point in the final quarter of 2022.
Japanese exports rebounded 3.1 percent (revised from plus 3.2 percent) on quarter in the April-June GDP, despite slow economic recovery in China, after posting their first drop in six quarters in January-March. Imports fell 4.3 percent (unrevised) for the third consecutive quarterly drop.
The number of visitors from other countries has continued to pick up since the government eased its Covid border control rules in October last year and eased further in May this year, leading to higher spending by foreign visitors, which is counted among exports of services. Exports of goods have been slower to recover, except for faster shipments of automobiles thanks to improving supply chains.
Private Inventories Trim GDP Growth, Public Works Spending Revised Down
Private sector inventories provided a negative 0.2-point contribution to the second quarter GDP, unrevised from the initial estimate, after pushing up the first quarter GDP by a revised 0.3 percentage point.
Public works spending marked its fifth straight quarterly increase, up 0.2 percent (revised down from a 1.2 percent rise) on the quarter in April-June. The median forecast was a downward revision to a 0.1 percent rise (forecasts ranged from a 0.4 percent drop to a 1.1 percent gain). This category has been backed by the supplementary budget for fiscal 2022 that ended in March. It followed a downwardly revised 1.4 percent rise in January-March. Public investment provided zero contribution to the second quarter GDP (revised down form a plus 0.1 point) after a positive 0.1-point contribution in the previous quarter.
Price Pressures Up on Year in Q2
The unadjusted deflator jumped 3.5 percent (revised up from 3.4 percent) on the year in April-June after rising 2.0 percent in January-March due to a 3.1 percent drop (revised up from minus 3.2 percent) in the import deflator following a 10.2 percent surge in the previous quarter. The pace of increase in the domestic demand deflator decelerated to 2.4 percent (revise down from 2.3 percent) from 2.8 percent.
The seasonally adjusted deflator rose 1.6 percent (revised up from a 1.4 percent rise) on quarter after rising 1.4 percent in the first quarter, with the domestic demand deflator growing 0.7 percent (revised up from 0.5 percent) and rising 0.5 percent in the prior quarter. The import deflator fell 3.2 percent in the second quarter after falling 5.2 percent in the prior quarter.
Flat business investment was revised down to post the first drop in two quarters while public works spending showed only a modest rise, compared to robust growth estimated last month. Consumption slipped after pent-up demand boosted demand in the previous two quarters.
The real gross domestic product grew 1.2 percent on quarter in the second quarter of 2023, revised down from the initial estimate of a 1.5 percent jump, with its annualized growth rate revised down to 4.8 from 6.0 percent. The revised growth was below the median economist forecast of a 1.3 percent rise, or an annualized 5.4 percent gain. Growth forecasts ranged from increases of 1.3 percent to 1.4 percent, or an annualized pace of 5.1 percent to 5.7 percent.
It followed growth of 0.8 percent (revised down slightly from 0.9 percent) on quarter, or an annualized 3.2 percent (revised down from 3.7 percent) in January-March. An unexpectedly high increase in private-sector inventories was revised down but still led the first quarter growth with resilient consumer spending and business investment.
The annualized 4.8 percent growth in the second quarter is the highest among the Group of Seven major economies, well above the solid 2.1 percent increase in the U.S., the modest 1.0 percent rise in the Eurozone and a surprise slight contraction in Canada.
From a year earlier, the Japanese economy rose 1.6 percent (revised down from a 2.0 percent rise) in April-June, posting the ninth consecutive rise following a 2.0 percent rise in January-March.
The Econoday Consensus Divergence Index stood at minus 39, below zero, which indicates the Japanese economy is performing worse than expected. Excluding the impact of inflation, the index was at minus 50.
Japanese policymakers believe the domestic economy still needs fiscal and monetary policy support. The output gap has turned positive after more than three years of staying in negative territory. It marked a slightly positive 0.4 percentage point in the April-June quarter of 2023 after a negative 0.9 point in January-March. The last positive gap was plus 1.2 points in the third quarter of 2019.
Looking ahead, economic growth in July-September is expected to lose some steam in the face of slowing global demand and domestic labor shortages, but it is still likely to be shored up by resilient consumer spending, thanks to widespread wage hikes and an expected sharp increase in summer bonuses.
The Cabinet Office estimates that the real GDP would have to grow at about 0.29 percent on quarter, or an annualized 1.1 percent, in each of the remaining quarters through January-March 2024 for the economy to hit the official forecast of 1.3 percent growth for fiscal 2023.
The economy grew a real 1.4 percent in fiscal 2022, below the official forecast of a 1.7 percent rise. It followed a 2.7 percent gain in fiscal 2021, decreases of 4.1 percent in fiscal 2020 and 0.8 percent in fiscal 2019, and a 0.2 percent rise in fiscal 2018.
Domestic Demand Revised Down Sharply
Domestic demand trimmed the second quarter GDP by 0.6 percentage point (revised down from a negative 0.3 point), after boosting Q1 growth by a revised 1.1points. The decline was due to a fall in private consumption and a pullback in private inventories. The only positive contribution to domestic demand came from a sharp gain in housing investment. Public works spending supported growth in the preliminary data but it now shows zero contribution.
Private consumption, which accounts for about 55 percent of GDP, fell 0.6 percent on quarter in the second quarter, revised down slightly from an initial 0.5 percent drop and coming in weaker than the median forecast for an unrevised 0.5 percent fall. Elevated costs for daily necessities and durable goods weighed on many households. It is the first drop in three quarters following increases of 0.6 percent in the first quarter and a revised 0.3 percent in the fourth quarter of 2022 and a slight decline in the third quarter.
Consumption pushed down the GDP by 0.4 percentage point (revised down from a negative 0.3 point) after making a positive 0.3 contribution to the total domestic output in the previous quarter.
In the second quarter, households trimmed spending on non-durable goods, such as food, beverages and soap, as suppliers continued to raise prices to reflect elevated import and production costs seen earlier. Expenditures on durable goods posted the first drop in four quarters as durable goods prices were also marked up and some households had already purchased cars and electric appliances earlier. The quarterly decline in those two categories more than offset modest gains in spending on semi-durable goods (including clothing, footwear and bags) and services.
Capex Rebound Revised Down Sharply
Business investment in equipment was revised down to a 1.0 percent drop on quarter in April-June from the initial reading of being flat (up a marginal 0.03 percent). It followed an unexpected rebound, by a downwardly revised 1.6 percent, in January-March and a 0.7 percent drop in October-December. Some firms remain cautious about implementing their plans, although capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
Capex trimmed the GDP by 0.2 percentage point (compared to a preliminary zero contribution) after providing a positive 0.3-point contribution the previous quarter.
Based on the results of a quarterly business survey by the Ministry of Finance released last week, the median economist forecast was a downward revision to a 0.8 percent decrease (forecasts ranged from 1.1 percent to 0.3 percent drops).
The demand-side survey by the MOF showed that combined capital investment by non-financial Japanese companies rose 4.5 percent on year in the April-June quarter, slowing from a 11.0 percent increase in January-March. On quarter, combined capital outlays fell a seasonally adjusted 1.2 percent after rising 2.4 percent in the previous quarter. The capex figures in the preliminary GDP calculation are based solely on supply side data.
Net Exports Rebound as Imports Continue to Drop
Net exports of goods and services -- exports minus imports -- made a positive 1.8 percentage point contribution to the total domestic output, as reported last month. In the previous quarter, the key measure of external demand pushed down the GDP by 0.3 point after raising it by a revised 0.3 point in the final quarter of 2022.
Japanese exports rebounded 3.1 percent (revised from plus 3.2 percent) on quarter in the April-June GDP, despite slow economic recovery in China, after posting their first drop in six quarters in January-March. Imports fell 4.3 percent (unrevised) for the third consecutive quarterly drop.
The number of visitors from other countries has continued to pick up since the government eased its Covid border control rules in October last year and eased further in May this year, leading to higher spending by foreign visitors, which is counted among exports of services. Exports of goods have been slower to recover, except for faster shipments of automobiles thanks to improving supply chains.
Private Inventories Trim GDP Growth, Public Works Spending Revised Down
Private sector inventories provided a negative 0.2-point contribution to the second quarter GDP, unrevised from the initial estimate, after pushing up the first quarter GDP by a revised 0.3 percentage point.
Public works spending marked its fifth straight quarterly increase, up 0.2 percent (revised down from a 1.2 percent rise) on the quarter in April-June. The median forecast was a downward revision to a 0.1 percent rise (forecasts ranged from a 0.4 percent drop to a 1.1 percent gain). This category has been backed by the supplementary budget for fiscal 2022 that ended in March. It followed a downwardly revised 1.4 percent rise in January-March. Public investment provided zero contribution to the second quarter GDP (revised down form a plus 0.1 point) after a positive 0.1-point contribution in the previous quarter.
Price Pressures Up on Year in Q2
The unadjusted deflator jumped 3.5 percent (revised up from 3.4 percent) on the year in April-June after rising 2.0 percent in January-March due to a 3.1 percent drop (revised up from minus 3.2 percent) in the import deflator following a 10.2 percent surge in the previous quarter. The pace of increase in the domestic demand deflator decelerated to 2.4 percent (revise down from 2.3 percent) from 2.8 percent.
The seasonally adjusted deflator rose 1.6 percent (revised up from a 1.4 percent rise) on quarter after rising 1.4 percent in the first quarter, with the domestic demand deflator growing 0.7 percent (revised up from 0.5 percent) and rising 0.5 percent in the prior quarter. The import deflator fell 3.2 percent in the second quarter after falling 5.2 percent in the prior quarter.
Market Consensus Before Announcement
Japan strong economic growth led by a sharp rebound in net exports amid easing import costs in the April-June quarter is expected to be revised down as recent data pointed to weaker than initially estimated business investment and public works spending. The real gross domestic product growth is forecast to be 1.3 percent on quarter in the second quarter, slower than the preliminary estimate of a 1.5 percent jump. The annualized growth rate is expected to be revised down to 5.4 percent from 6.0 percent.
Domestic demand is expected to trim the second quarter GDP by 0.4 percentage point (revised down from a negative 0.3 point) after boosting the first quarter growth by 1.2 points. The decline in last month's preliminary data was due to a fall in private consumption and a pullback in private inventories. The only positive contributions to domestic demand came from a sharp gain in housing investment and a rise in public works spending.
The positive 1.8-point contribution by net exports -- exports minus imports -- is expected to be unrevised.
Domestic demand is expected to trim the second quarter GDP by 0.4 percentage point (revised down from a negative 0.3 point) after boosting the first quarter growth by 1.2 points. The decline in last month's preliminary data was due to a fall in private consumption and a pullback in private inventories. The only positive contributions to domestic demand came from a sharp gain in housing investment and a rise in public works spending.
The positive 1.8-point contribution by net exports -- exports minus imports -- 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.
