| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| Quarter over Quarter | -0.2% | -0.3% to 0.1% | -0.5% | 1.2% | 1.1% |
| Annual Rate | -0.6% | -1.2% to 0.4% | -2.1% | 4.8% | 4.5% |
| Year over Year | 1.9% | 1.3% to 2.0% | 1.2% | 1.6% | 1.7% |
Highlights
Key points from preliminary GDP data for July-September Quarter:
--Japan Q3 GDP posts 1st contraction in 3 quarters on pullback in net exports, sharp drop in private inventories, weaker public works, capex
--Q3 GDP -2.1% annualized drop much weaker than -0.6% median forecast
--Consumption flat as pent-up demand for eating out, traveling wanes
--Q4 GDP seen up but faces slowing global demand, domestic labor shortages
Japan's gross domestic product for the July-September quarter posted its first contraction in three quarters, down 0.5 percent on quarter, or an annualized 2.1 percent, as private inventories plunged, net exports slipped after a sharp rebound in April-June, public works spending slowed, pent-up demand for eating out and traveling waned and firms turned cautious about capital investment, Cabinet Office data released Wednesday showed.
The preliminary data came in much weaker than the median economist forecast of 0.2 percent contraction (forecasts ranged from a 0.3 percent drop to a 0.1 percent rise), or an annualized 0.6 percent decline (minus 1.2 percent to plus 0.4 percent).
It followed growth of 1.1 percent (revised down from 1.2 percent) on quarter, or an annualized 4.5 percent (revised from 4.8 percent) in April-June, which was led by a sharp rebound in net exports amid easing import costs, which mitigated drops in consumption and capital investment.
The slight 0.1 percent economic growth on quarter in the final quarter of 2022 was revised down to 0.3 percent contraction, indicating that Japan had a technical recession in the second half of last year. The 0.3 percent contraction in the third quarter of 2022 was revised up to a 0.1 percent drop.
The Econoday Consensus Divergence Index stood at minus 11, below zero, which indicates the Japanese economy is performing worse than expected after outperforming recently. Excluding the impact of inflation, the index was at minus 25.
Japanese policymakers believe the economy still needs monetary and fiscal policy support for sustained growth with substantial wage hikes under stable 2 percent inflation.
From a year earlier, the economy rose 1.2 percent in July-September (consensus was 1.9 percent), posting the 10th consecutive rise following a 1.7 percent rise (revised up from 1.6 percent) in April-June.
Looking ahead, the economy in October-December is expected to show a slight rebound but faces the headwinds of slowing global demand, elevated costs for daily necessities and labor shortages.
The Cabinet Office estimates that the real GDP would hit the official forecast of 1.3 percent growth for fiscal 2023 if it drops 0.2 percent on quarter, or an annualized 0.06 percent, in each of the remaining quarters through January-March 2024.
The economy grew a real 1.3 percent in fiscal 2022 (revised down from 1.4 percent), below the official forecast of a 1.7 percent rise. It followed a 2.6 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 Slump Led by Private Inventories; Consumption Flat
Domestic demand trimmed the third quarter GDP by 0.4 percentage point, weaker than the median forecast of being flat (forecasts ranged from a negative 0.2 point to a positive 0.4 point), after lowering Q2 growth by 0.7 point. The decline was due to a sharp drop in private inventories as well as a pullback in public works spending and a second consecutive fall in business investment. The only positive contribution to domestic demand came from government investment.
Private consumption, which accounts for about 55 percent of GDP, was flat (down 0.04 percent) on quarter in the third quarter, coming in weaker than the median projection of a 0.2 percent increase (forecasts ranged from a 0.2 percent drop to a 0.4 percent gain). Elevated costs for daily necessities and durable goods weighed on many households. It followed a downwardly revised 0.9 percent drop in the second quarter, which was the first fall in five quarters.
Consumption provided zero (minus 0.0 percentage point) contribution to the GDP after making a negative 0.5-point contribution to the total domestic output in the previous quarter.
In the third quarter, households trimmed spending on non-durable goods, such as food, beverages and cleaning products, as suppliers continued to raise prices to reflect high import and production costs seen earlier. Expenditures on durable goods posted the second straight quarterly drop as durable goods prices were also marked up and some households had already purchased cars and electric appliances. Spending on semi-durable goods (including clothing, footwear and bags) also slipped after posting the first rebound in three quarters in April-June.
The quarterly decline in those three categories more than offset a modest gain in services.
Capex Sluggish Amid Global Uncertainty
Business investment in equipment fell 0.6 percent on quarter in July-September, which was weaker than the median forecast of a 0.1 percent rise (forecasts ranged from a 1.1 percent drop percent to a 1.7 percent rise). It followed a 1.0 percent drop in April-June.
Capex trimmed the GDP by 0.1 percentage point after providing a negative 0.2-point contribution the previous quarter.
Some firms remain cautious about implementing their plans amid elevated costs and uncertainty over global growth, although capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
The Bank of Japan's quarterly Tankan business survey for September released last month showed large corporations revised up their plans for investment in equipment slightly for fiscal 2023 that began in April, as largely expected, and smaller firms raised their capex plans much more sharply than forecast.
Net Exports Dip After Q2's Sharp Rebound
Net exports of goods and services -- exports minus imports -- made a negative 0.1 percentage point contribution to the total domestic output, coming in slightly firmer than the median forecast of a 0.2-point drop (forecasts ranged from minus 0.5 to plus 0.1 points). In the previous quarter, the key measure of external demand pushed up the GDP by 1.8 points.
Japanese exports edged up 0.5 percent on quarter in the July-September GDP, after rebounding a revised 3.9 percent in April-June and posting their first drop in five quarters in January-March, down 3.5 percent. Imports rose 1.0 percent for the first rise in three quarters after dropping a revised 3.8 percent previously.
The number of visitors from other countries has continued to pick up in the absence of strict Covid border control, leading to higher spending by foreign visitors, which is counted among exports of services. By contrast, exports of goods have been slower to recover, except for shipments of automobiles thanks to improving supply chains.
Private Inventories Trim GDP, Public Works Spending Down
Private sector inventories provided a negative 0.3-point contribution to the second quarter GDP, compared to the median forecast of a negative 0.1-point contribution (forecasts ranged from a 0.2-point drop to being flat), after pushing down the second quarter GDP by a revised 0.1 percentage point.
Public works spending marked its first quarterly drop in six quarters, down 0.5 percent on the quarter in July-September, which slightly firmer than the median forecast of a 0.6 percent drop (forecasts ranged from a 1.4 percent fall to a 0.2 percent rise). The effects of earlier spending funded by the supplementary budget for fiscal 2022 that ended in March had run its course. It followed an upwardly revised 0.3 percent rise in April-June.
Public investment made zero contribution (minus 0.0 point) to the third quarter GDP after providing zero contribution (plus 0.0 point) in the previous quarter.
Price Pressures Accelerate on Year, Ease on Quarter
The unadjusted deflator surged 5.1 percent on the year in July-September after rising 3.5 percent in April-June. It was due to a 7.8 percent plunge in the import deflator following a revised 3.1 percent drop in the previous quarter. The pace of increase in the domestic demand deflator was steady at 2.4 percent after easing from 2.8 percent in the first quarter.
The seasonally adjusted deflator rose 0.5 percent on quarter after rising 1.4 percent in the second quarter, with the domestic deflator growing at slower pace of 0.3 percent after rising 0.5 percent previously. The import deflator rose 1.9 percent in the third quarter after falling a revised 2.8 percent in the prior quarter.
--Japan Q3 GDP posts 1st contraction in 3 quarters on pullback in net exports, sharp drop in private inventories, weaker public works, capex
--Q3 GDP -2.1% annualized drop much weaker than -0.6% median forecast
--Consumption flat as pent-up demand for eating out, traveling wanes
--Q4 GDP seen up but faces slowing global demand, domestic labor shortages
Japan's gross domestic product for the July-September quarter posted its first contraction in three quarters, down 0.5 percent on quarter, or an annualized 2.1 percent, as private inventories plunged, net exports slipped after a sharp rebound in April-June, public works spending slowed, pent-up demand for eating out and traveling waned and firms turned cautious about capital investment, Cabinet Office data released Wednesday showed.
The preliminary data came in much weaker than the median economist forecast of 0.2 percent contraction (forecasts ranged from a 0.3 percent drop to a 0.1 percent rise), or an annualized 0.6 percent decline (minus 1.2 percent to plus 0.4 percent).
It followed growth of 1.1 percent (revised down from 1.2 percent) on quarter, or an annualized 4.5 percent (revised from 4.8 percent) in April-June, which was led by a sharp rebound in net exports amid easing import costs, which mitigated drops in consumption and capital investment.
The slight 0.1 percent economic growth on quarter in the final quarter of 2022 was revised down to 0.3 percent contraction, indicating that Japan had a technical recession in the second half of last year. The 0.3 percent contraction in the third quarter of 2022 was revised up to a 0.1 percent drop.
The Econoday Consensus Divergence Index stood at minus 11, below zero, which indicates the Japanese economy is performing worse than expected after outperforming recently. Excluding the impact of inflation, the index was at minus 25.
Japanese policymakers believe the economy still needs monetary and fiscal policy support for sustained growth with substantial wage hikes under stable 2 percent inflation.
From a year earlier, the economy rose 1.2 percent in July-September (consensus was 1.9 percent), posting the 10th consecutive rise following a 1.7 percent rise (revised up from 1.6 percent) in April-June.
Looking ahead, the economy in October-December is expected to show a slight rebound but faces the headwinds of slowing global demand, elevated costs for daily necessities and labor shortages.
The Cabinet Office estimates that the real GDP would hit the official forecast of 1.3 percent growth for fiscal 2023 if it drops 0.2 percent on quarter, or an annualized 0.06 percent, in each of the remaining quarters through January-March 2024.
The economy grew a real 1.3 percent in fiscal 2022 (revised down from 1.4 percent), below the official forecast of a 1.7 percent rise. It followed a 2.6 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 Slump Led by Private Inventories; Consumption Flat
Domestic demand trimmed the third quarter GDP by 0.4 percentage point, weaker than the median forecast of being flat (forecasts ranged from a negative 0.2 point to a positive 0.4 point), after lowering Q2 growth by 0.7 point. The decline was due to a sharp drop in private inventories as well as a pullback in public works spending and a second consecutive fall in business investment. The only positive contribution to domestic demand came from government investment.
Private consumption, which accounts for about 55 percent of GDP, was flat (down 0.04 percent) on quarter in the third quarter, coming in weaker than the median projection of a 0.2 percent increase (forecasts ranged from a 0.2 percent drop to a 0.4 percent gain). Elevated costs for daily necessities and durable goods weighed on many households. It followed a downwardly revised 0.9 percent drop in the second quarter, which was the first fall in five quarters.
Consumption provided zero (minus 0.0 percentage point) contribution to the GDP after making a negative 0.5-point contribution to the total domestic output in the previous quarter.
In the third quarter, households trimmed spending on non-durable goods, such as food, beverages and cleaning products, as suppliers continued to raise prices to reflect high import and production costs seen earlier. Expenditures on durable goods posted the second straight quarterly drop as durable goods prices were also marked up and some households had already purchased cars and electric appliances. Spending on semi-durable goods (including clothing, footwear and bags) also slipped after posting the first rebound in three quarters in April-June.
The quarterly decline in those three categories more than offset a modest gain in services.
Capex Sluggish Amid Global Uncertainty
Business investment in equipment fell 0.6 percent on quarter in July-September, which was weaker than the median forecast of a 0.1 percent rise (forecasts ranged from a 1.1 percent drop percent to a 1.7 percent rise). It followed a 1.0 percent drop in April-June.
Capex trimmed the GDP by 0.1 percentage point after providing a negative 0.2-point contribution the previous quarter.
Some firms remain cautious about implementing their plans amid elevated costs and uncertainty over global growth, although capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
The Bank of Japan's quarterly Tankan business survey for September released last month showed large corporations revised up their plans for investment in equipment slightly for fiscal 2023 that began in April, as largely expected, and smaller firms raised their capex plans much more sharply than forecast.
Net Exports Dip After Q2's Sharp Rebound
Net exports of goods and services -- exports minus imports -- made a negative 0.1 percentage point contribution to the total domestic output, coming in slightly firmer than the median forecast of a 0.2-point drop (forecasts ranged from minus 0.5 to plus 0.1 points). In the previous quarter, the key measure of external demand pushed up the GDP by 1.8 points.
Japanese exports edged up 0.5 percent on quarter in the July-September GDP, after rebounding a revised 3.9 percent in April-June and posting their first drop in five quarters in January-March, down 3.5 percent. Imports rose 1.0 percent for the first rise in three quarters after dropping a revised 3.8 percent previously.
The number of visitors from other countries has continued to pick up in the absence of strict Covid border control, leading to higher spending by foreign visitors, which is counted among exports of services. By contrast, exports of goods have been slower to recover, except for shipments of automobiles thanks to improving supply chains.
Private Inventories Trim GDP, Public Works Spending Down
Private sector inventories provided a negative 0.3-point contribution to the second quarter GDP, compared to the median forecast of a negative 0.1-point contribution (forecasts ranged from a 0.2-point drop to being flat), after pushing down the second quarter GDP by a revised 0.1 percentage point.
Public works spending marked its first quarterly drop in six quarters, down 0.5 percent on the quarter in July-September, which slightly firmer than the median forecast of a 0.6 percent drop (forecasts ranged from a 1.4 percent fall to a 0.2 percent rise). The effects of earlier spending funded by the supplementary budget for fiscal 2022 that ended in March had run its course. It followed an upwardly revised 0.3 percent rise in April-June.
Public investment made zero contribution (minus 0.0 point) to the third quarter GDP after providing zero contribution (plus 0.0 point) in the previous quarter.
Price Pressures Accelerate on Year, Ease on Quarter
The unadjusted deflator surged 5.1 percent on the year in July-September after rising 3.5 percent in April-June. It was due to a 7.8 percent plunge in the import deflator following a revised 3.1 percent drop in the previous quarter. The pace of increase in the domestic demand deflator was steady at 2.4 percent after easing from 2.8 percent in the first quarter.
The seasonally adjusted deflator rose 0.5 percent on quarter after rising 1.4 percent in the second quarter, with the domestic deflator growing at slower pace of 0.3 percent after rising 0.5 percent previously. The import deflator rose 1.9 percent in the third quarter after falling a revised 2.8 percent in the prior quarter.
Market Consensus Before Announcement
Japan's gross domestic product for the July-September quarter is widely expected to post its first contraction in four quarters, down 0.2 percent on quarter, or an annualized 0.6 percent, as net exports slipped back after a sharp rebound in April-June, public works spending slowed, pent-up demand for eating out and traveling waned and firms turned cautious about capital investment. That would follow strong growth of 1.2 percent on quarter, or an annualized 4.8 percent in April-June, which was led by a sharp rebound in net exports amid easing import costs, which mitigated drops in consumption and capital investment.
From a year earlier, the economy is forecast to have grown 1.9 percent in the third quarter for a 10th consecutive rise following a 1.6 percent increase in the prior quarter.
Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Figures in the previous quarter are in parentheses:
Private consumption plus 0.2 (minus 0.6)
Business investment plus 0.1 (minus 1.0)
Public investment minus 0.6 (plus 0.2)
Net exports (external demand) minus 0.2 (plus 1.8)
Domestic demand 0.0 (minus 0.6)
From a year earlier, the economy is forecast to have grown 1.9 percent in the third quarter for a 10th consecutive rise following a 1.6 percent increase in the prior quarter.
Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Figures in the previous quarter are in parentheses:
Private consumption plus 0.2 (minus 0.6)
Business investment plus 0.1 (minus 1.0)
Public investment minus 0.6 (plus 0.2)
Net exports (external demand) minus 0.2 (plus 1.8)
Domestic demand 0.0 (minus 0.6)
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.
