| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Quarter over Quarter | -0.5% | -0.6% to -0.3% | -0.7% | -0.5% |
| Annual Rate | -2.1% | -2.4% to -1.1% | -2.9% | -2.1% |
| Year over Year | 1.3% | 1.2% to 1.5% | 1.5% | 1.2% |
Highlights
Japan's first economic contraction in four quarters in the July-September quarter was revised down more than expected due mainly to a larger-than-forecast inventory drop but it still confirmed that weak domestic demand dented overall output for the second straight quarter and net exports slipped after surging in April-June, according to data released Friday by the Cabinet Office.
The real GDP fell 0.7 percent on quarter in the third quarter of 2023, revised down from the initial estimate of a 0.5 percent slip, while its annualized growth rate was revised down to a sharp 2.9 percent slump from a 2.1 percent fall.
Consensus among nine economists was unrevised. The forecasts ranged from decreases of 0.6 percent to 0.3 percent, or an annualized pace of 2.4 percent to 1.1 percent.
The contraction followed growth of 0.9 percent (revised down from 1.1 percent) on quarter, or an annualized 3.6 percent (initially 4.5 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.
In the preliminary GDP data released last month, the October-December 2022 quarter posted a 0.1% drop, or annualized 0.2% fall, for a second straight quarterly decline, but it was revised up to show 0.2% growth (up 1.0% annualized). This made the July-September 2023 contraction the first in four quarters, instead of three, and Japan avoided a technical recession in the second half of last year.
Economists had warned that annual revisions to the gross domestic product, which was released at the same time as the revised (second preliminary) GDP data, might cause widespread changes to the past figures, and thus would trigger a larger-than-expected revision to the third-quarter numbers.
In the third quarter, 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.
From a year earlier, the economy grew 1.5 percent in July-September, revised up from a preliminary 1.2 percent rise, for the 10th consecutive increase following a 1.7 percent gain in April-June.
Econoday's Relative Performance Index stood at minus 16, which indicates the Japanese economy is performing worse than expected. Excluding the impact of inflation, the RPI was at plus 7.
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.
Domestic Demand Drop Revised Down; Consumption Weaker Than Expected
Domestic demand trimmed the third quarter GDP by 0.6 percentage point, revised down from a negative 0.4-piont contribution (forecasts ranged from 0.5- to 0.2-point decreases) 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, fell 0.2 percent on quarter in the third quarter, revised down from the initial reading of being flat (down 0.04 percent). Elevated costs for daily necessities and durable goods weighed on many households. It followed an upwardly revised 0.6 percent drop in the second quarter, which was the first fall in two quarters.
Consumption provided a negative 0.1 percentage point contribution to the GDP (revised down form a preliminary minus 0.0 point) after making a negative 0.3-point contribution to the total domestic output in the previous quarter.
Capex Drop Revised Up Slightly but Still Trims Q3 GDP
Business investment in equipment posted a 0.4 percent drop on quarter in July-September, which was an upward revision from a 0.6 percent drop seen in the preliminary data. It followed a downwardly revised 1.3 percent fall in April-June.
Capex trimmed the GDP by an unrevised 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 revision is based on the results of a quarterly business survey by the Ministry of Finance released last week, which showed mixed results for business investment.
The demand-side survey by the MOF showed that combined capital investment by non-financial Japanese companies rose 3.4 percent on year in the July-September quarter, slowing further from a 4.5 percent increase in April-June. On quarter, combined capital outlays rebounded a seasonally adjusted 1.4 percent after falling 1.2 percent in the previous quarter. The capex figures in the preliminary GDP calculation are based solely on supply side data.
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, as reported last month. In the previous quarter, the key measure of external demand pushed up the GDP by 1.6 points.
Japanese exports edged up 0.4 percent on quarter in the July-September GDP, after rebounding 3.8 percent in April-June and posting their first drop in five quarters in January-March, down 3.5 percent. Imports rose 0.8 percent for the first rise in three quarters after dropping 3.3 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 Japanese 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 Growth, Public Works Spending Down
Private sector inventories provided a negative 0.5-point contribution to the second quarter GDP, unexpectedly revised down from minus 0.3 point in the initial estimate, after pushing down the second quarter GDP by 0.3 percentage point.
Of the nine economists, seven had forecast no revision, one expected an upward revision to a 0.2-point drop and another one saw a slight 0.1-point fall.
Public works spending marked its first quarterly drop in three quarters, down 0.8 percent on the quarter in July-September. It was revised down from the initial reading of a 0.5 percent fall. Economist forecasts ranged from a downward revision to a 1.2 percent drop to an upward revision to a 0.3 percent fall. It followed an upwardly revised 1.5 percent rise in April-June.
The effects of earlier spending funded by the supplementary budget for fiscal 2022 that ended in March had run its course.
Public investment made zero contribution (minus 0.0 point) to the third quarter GDP after providing a positive 0.1 point in the previous quarter.
Price Pressures Build Up on Year, Ease on Quarter
The unadjusted deflator surged 5.3 percent (revised from 5.1 percent) on the year in July-September after rising 3.8 percent (revised from 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 eased to 2.6 percent (revised from 2.4 percent) from 2.7 percent (revised from 2.4 percent).
The seasonally adjusted deflator rose 0.7 percent (revised from 0.5 percent) on quarter after rising 1.7 percent (revised from 1.4 percent) in the second quarter, with the domestic deflator growing at slower pace of 0.4 percent (revised from 0.3 percent) after rising 0.9 percent (revised from 0.5 percent) previously. The import deflator rose 1.1 percent (revised from 1.9 percent) in the third quarter after falling 3.0 percent (revised from 2.8 percent) in the prior quarter.
The real GDP fell 0.7 percent on quarter in the third quarter of 2023, revised down from the initial estimate of a 0.5 percent slip, while its annualized growth rate was revised down to a sharp 2.9 percent slump from a 2.1 percent fall.
Consensus among nine economists was unrevised. The forecasts ranged from decreases of 0.6 percent to 0.3 percent, or an annualized pace of 2.4 percent to 1.1 percent.
The contraction followed growth of 0.9 percent (revised down from 1.1 percent) on quarter, or an annualized 3.6 percent (initially 4.5 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.
In the preliminary GDP data released last month, the October-December 2022 quarter posted a 0.1% drop, or annualized 0.2% fall, for a second straight quarterly decline, but it was revised up to show 0.2% growth (up 1.0% annualized). This made the July-September 2023 contraction the first in four quarters, instead of three, and Japan avoided a technical recession in the second half of last year.
Economists had warned that annual revisions to the gross domestic product, which was released at the same time as the revised (second preliminary) GDP data, might cause widespread changes to the past figures, and thus would trigger a larger-than-expected revision to the third-quarter numbers.
In the third quarter, 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.
From a year earlier, the economy grew 1.5 percent in July-September, revised up from a preliminary 1.2 percent rise, for the 10th consecutive increase following a 1.7 percent gain in April-June.
Econoday's Relative Performance Index stood at minus 16, which indicates the Japanese economy is performing worse than expected. Excluding the impact of inflation, the RPI was at plus 7.
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.
Domestic Demand Drop Revised Down; Consumption Weaker Than Expected
Domestic demand trimmed the third quarter GDP by 0.6 percentage point, revised down from a negative 0.4-piont contribution (forecasts ranged from 0.5- to 0.2-point decreases) 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, fell 0.2 percent on quarter in the third quarter, revised down from the initial reading of being flat (down 0.04 percent). Elevated costs for daily necessities and durable goods weighed on many households. It followed an upwardly revised 0.6 percent drop in the second quarter, which was the first fall in two quarters.
Consumption provided a negative 0.1 percentage point contribution to the GDP (revised down form a preliminary minus 0.0 point) after making a negative 0.3-point contribution to the total domestic output in the previous quarter.
Capex Drop Revised Up Slightly but Still Trims Q3 GDP
Business investment in equipment posted a 0.4 percent drop on quarter in July-September, which was an upward revision from a 0.6 percent drop seen in the preliminary data. It followed a downwardly revised 1.3 percent fall in April-June.
Capex trimmed the GDP by an unrevised 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 revision is based on the results of a quarterly business survey by the Ministry of Finance released last week, which showed mixed results for business investment.
The demand-side survey by the MOF showed that combined capital investment by non-financial Japanese companies rose 3.4 percent on year in the July-September quarter, slowing further from a 4.5 percent increase in April-June. On quarter, combined capital outlays rebounded a seasonally adjusted 1.4 percent after falling 1.2 percent in the previous quarter. The capex figures in the preliminary GDP calculation are based solely on supply side data.
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, as reported last month. In the previous quarter, the key measure of external demand pushed up the GDP by 1.6 points.
Japanese exports edged up 0.4 percent on quarter in the July-September GDP, after rebounding 3.8 percent in April-June and posting their first drop in five quarters in January-March, down 3.5 percent. Imports rose 0.8 percent for the first rise in three quarters after dropping 3.3 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 Japanese 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 Growth, Public Works Spending Down
Private sector inventories provided a negative 0.5-point contribution to the second quarter GDP, unexpectedly revised down from minus 0.3 point in the initial estimate, after pushing down the second quarter GDP by 0.3 percentage point.
Of the nine economists, seven had forecast no revision, one expected an upward revision to a 0.2-point drop and another one saw a slight 0.1-point fall.
Public works spending marked its first quarterly drop in three quarters, down 0.8 percent on the quarter in July-September. It was revised down from the initial reading of a 0.5 percent fall. Economist forecasts ranged from a downward revision to a 1.2 percent drop to an upward revision to a 0.3 percent fall. It followed an upwardly revised 1.5 percent rise in April-June.
The effects of earlier spending funded by the supplementary budget for fiscal 2022 that ended in March had run its course.
Public investment made zero contribution (minus 0.0 point) to the third quarter GDP after providing a positive 0.1 point in the previous quarter.
Price Pressures Build Up on Year, Ease on Quarter
The unadjusted deflator surged 5.3 percent (revised from 5.1 percent) on the year in July-September after rising 3.8 percent (revised from 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 eased to 2.6 percent (revised from 2.4 percent) from 2.7 percent (revised from 2.4 percent).
The seasonally adjusted deflator rose 0.7 percent (revised from 0.5 percent) on quarter after rising 1.7 percent (revised from 1.4 percent) in the second quarter, with the domestic deflator growing at slower pace of 0.4 percent (revised from 0.3 percent) after rising 0.9 percent (revised from 0.5 percent) previously. The import deflator rose 1.1 percent (revised from 1.9 percent) in the third quarter after falling 3.0 percent (revised from 2.8 percent) in the prior quarter.
Market Consensus Before Announcement
Japan's revised (second preliminary) GDP data for the July-September quarter is expected to show minor revisions, confirming that domestic demand was weak. Preliminary data released last month showed the economy 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.
Based on the Ministry of Finance quarterly business survey released Friday, some economists expect capital investment will be revised up while others see a downward revision. A few economists forecast a slight upward revision to private sector inventories.
Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Preliminary figures are in parentheses.
GDP quarter on quarter: minus 0.5 percent (minus 0.5 percent)
GDP annualized: minus 2.1 percent (minus 2.1 percent)
Private consumption: minus 0.0 percent (minus 0.0 percent)
Business investment: minus 0.6 percent (minus 0.6 percent)
Private sector inventories: minus 0.3 point (minus 0.3 point)
Public investment: minus 0.5 percent (minus 0.5 percent)
Net exports (external demand): minus 0.1 point (minus 0.1 point)
Domestic demand: minus 0.4 percent (minus 0.4 percent)
Based on the Ministry of Finance quarterly business survey released Friday, some economists expect capital investment will be revised up while others see a downward revision. A few economists forecast a slight upward revision to private sector inventories.
Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Preliminary figures are in parentheses.
GDP quarter on quarter: minus 0.5 percent (minus 0.5 percent)
GDP annualized: minus 2.1 percent (minus 2.1 percent)
Private consumption: minus 0.0 percent (minus 0.0 percent)
Business investment: minus 0.6 percent (minus 0.6 percent)
Private sector inventories: minus 0.3 point (minus 0.3 point)
Public investment: minus 0.5 percent (minus 0.5 percent)
Net exports (external demand): minus 0.1 point (minus 0.1 point)
Domestic demand: minus 0.4 percent (minus 0.4 percent)
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.
