| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Quarter over Quarter | -0.5% | -0.9% to -0.3% | -0.5% | -0.5% |
| Annual Rate | -2.0% | -3.6% to -1.0% | -1.8% | -2.0% |
| Year over Year | -0.3% | -0.4% to -0.2% | -0.1% | -0.2% |
Highlights
The second reading of Japan's gross domestic product for the January-March quarter confirmed the economy posted its first contraction in two quarters, down an unrevised 0.5 percent on quarter, but the annualized drop was revised up slightly to 1.8 percent from last month's initial estimate of 2.0 percent thanks to a higher-than-expected private inventory buildup that offset the impact of slightly weaker-than-expected exports. As seen in the preliminary data, a rebound in public works spending was more than offset by a pullback in business investment and weak consumer spending.
Suspended output at Toyota group firms over a safety test scandal in the first two months of the year triggered a widespread slump beyond the auto industry, hurting consumption and business investment, while net exports declined in payback for a temporary service income surge in the previous quarter. The economy narrowly averted a second straight contraction in the final quarter of 2023.
The median forecast for the first quarter real GDP was no revisions from the first reading. The forecasts by 10 economists ranged from decreases of 0.9 percent to 0.3 percent on quarter, or an annualized pace of 3.6 percent to 1.0 percent.
Domestic demand trimmed the first quarter GDP by a slight 0.1 percentage point, revised up from a negative 0.2 point in the initial. Private sector inventories provided a positive 0.3 percentage point contribution to the first quarter GDP, revised up from the initial estimate of plus 0.2 point. Business investment in equipment fell 0.4 percent on quarter in January-March, an upward revision from the initial reading of a 0.8 percent slump, but it still made a negative 0.1-point contribution, as seen in the preliminary data. Private consumption, which accounts for about 55 percent of GDP, fell an unrevised 0.7 percent for a fourth straight quarterly decline, pushing down the GDP by an unrevised 0.4 percentage point.
Net exports of goods and services -- exports minus imports -- made a negative 0.4 percentage point contribution to the total domestic output, revised down from minus 0.3 point in the initial reading.
The economy narrowly averted a second straight contraction in the final quarter of 2023. In the preliminary first-quarter GDP data, the fourth quarter's slight growth was revised down to be flat but it has now been revised up to a 0.1 percent rise on quarter, or annualized 0.4 percent growth. In October-December, a solid rebound in business investment and a rise in net exports due to a temporary surge in services income (copyright royalties) were partially offset by declines in consumption and public works as well as a slight fall in private-sector inventories.
From a year earlier, the economy fell just 0.1 percent in January-March for the first drop in three years, revised up from a preliminary 0.2 percent drop, following a revised 1.1 percent rise in October-December. The consensus forecast was a 0.3 percent fall.
Econoday's Relative Performance Index stands at zero, which indicates the Japanese economy is performing as expected after slightly underperforming recently. Excluding the impact of inflation, the RPI is at plus 5.
Looking ahead, the economy in April-June is expected to show modest growth of about 2 percent annualized as auto production resumed in March but more revelations of false safety test records in June, this time at Toyota Motor itself, instead of its subsidiaries, are clouding the growth outlook for coming months. In addition, consumer spending remains sluggish amid elevated costs for food and other necessities. Both households and businesses are concerned that the weakness of the yen, whose value has hit 34-year lows against the dollar, will cause a resumed spike in import costs at a time when transport and labor costs are rising together with some commodities.
The Cabinet Office estimates that in order for real GDP to hit the official forecast of 1.3 percent growth in fiscal 2024, the economy will have to grow 0.73 percent on quarter, or an annualized 3.0 percent in each quarter of the fiscal year that began in April, which appears to be above Japan's potential growth rate.
The economy grew a real 1.2 percent in fiscal 2023, below the official forecast of a 1.6 percent rise after expanding 1.6 percent in fiscal 2022, which was slightly under the official projection of 1.7 percent. It followed a 2.8 percent gain in fiscal 2021 and decreases of 3.9 percent in fiscal 2020 and 0.8 percent in fiscal 2019.
Suspended output at Toyota group firms over a safety test scandal in the first two months of the year triggered a widespread slump beyond the auto industry, hurting consumption and business investment, while net exports declined in payback for a temporary service income surge in the previous quarter. The economy narrowly averted a second straight contraction in the final quarter of 2023.
The median forecast for the first quarter real GDP was no revisions from the first reading. The forecasts by 10 economists ranged from decreases of 0.9 percent to 0.3 percent on quarter, or an annualized pace of 3.6 percent to 1.0 percent.
Domestic demand trimmed the first quarter GDP by a slight 0.1 percentage point, revised up from a negative 0.2 point in the initial. Private sector inventories provided a positive 0.3 percentage point contribution to the first quarter GDP, revised up from the initial estimate of plus 0.2 point. Business investment in equipment fell 0.4 percent on quarter in January-March, an upward revision from the initial reading of a 0.8 percent slump, but it still made a negative 0.1-point contribution, as seen in the preliminary data. Private consumption, which accounts for about 55 percent of GDP, fell an unrevised 0.7 percent for a fourth straight quarterly decline, pushing down the GDP by an unrevised 0.4 percentage point.
Net exports of goods and services -- exports minus imports -- made a negative 0.4 percentage point contribution to the total domestic output, revised down from minus 0.3 point in the initial reading.
The economy narrowly averted a second straight contraction in the final quarter of 2023. In the preliminary first-quarter GDP data, the fourth quarter's slight growth was revised down to be flat but it has now been revised up to a 0.1 percent rise on quarter, or annualized 0.4 percent growth. In October-December, a solid rebound in business investment and a rise in net exports due to a temporary surge in services income (copyright royalties) were partially offset by declines in consumption and public works as well as a slight fall in private-sector inventories.
From a year earlier, the economy fell just 0.1 percent in January-March for the first drop in three years, revised up from a preliminary 0.2 percent drop, following a revised 1.1 percent rise in October-December. The consensus forecast was a 0.3 percent fall.
Econoday's Relative Performance Index stands at zero, which indicates the Japanese economy is performing as expected after slightly underperforming recently. Excluding the impact of inflation, the RPI is at plus 5.
Looking ahead, the economy in April-June is expected to show modest growth of about 2 percent annualized as auto production resumed in March but more revelations of false safety test records in June, this time at Toyota Motor itself, instead of its subsidiaries, are clouding the growth outlook for coming months. In addition, consumer spending remains sluggish amid elevated costs for food and other necessities. Both households and businesses are concerned that the weakness of the yen, whose value has hit 34-year lows against the dollar, will cause a resumed spike in import costs at a time when transport and labor costs are rising together with some commodities.
The Cabinet Office estimates that in order for real GDP to hit the official forecast of 1.3 percent growth in fiscal 2024, the economy will have to grow 0.73 percent on quarter, or an annualized 3.0 percent in each quarter of the fiscal year that began in April, which appears to be above Japan's potential growth rate.
The economy grew a real 1.2 percent in fiscal 2023, below the official forecast of a 1.6 percent rise after expanding 1.6 percent in fiscal 2022, which was slightly under the official projection of 1.7 percent. It followed a 2.8 percent gain in fiscal 2021 and decreases of 3.9 percent in fiscal 2020 and 0.8 percent in fiscal 2019.
Market Consensus Before Announcement
Japan's economic slump in the January-March quarter is expected to be largely unrevised in the second reading of gross domestic product data, with business investment and public works spending seen revised up slightly. The real GDP is forecast to have contracted 0.5 percent on quarter in the first quarter, or an annualized 2.0 percent, the same as the initial estimate. Some economists expect a slight upward revision while a few see a slightly deeper decline.
Preliminary data released last month showed the economy posted its first contraction in two quarters as suspended output at Toyota group firms over a safety test scandal triggered a widespread slump beyond the auto industry, hurting consumption and business investment, while net exports declined in payback for a temporary service income surge in the previous quarter. The economy narrowly averted a second straight contraction in the final quarter of 2023.
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 over quarter: minus 0.5 percent (minus 0.5 percent)
GDP annualized: minus 2.0 percent (minus 2.0 percent)
GDP year over year: minus 0.3 percent (minus 0.2 percent)
Private consumption: minus 0.7 percent (minus 0.7 percent)
Business investment: minus 0.7 percent (minus 0.8 percent)
Public investment: plus 3.5 percent (minus 3.1 percent)
Private sector inventories: plus 0.2 point (plus 0.2 point)
Net exports (external demand): minus 0.3 point (minus 0.3 point)
Domestic demand: minus 0.2 point (minus 0.2 point)
Preliminary data released last month showed the economy posted its first contraction in two quarters as suspended output at Toyota group firms over a safety test scandal triggered a widespread slump beyond the auto industry, hurting consumption and business investment, while net exports declined in payback for a temporary service income surge in the previous quarter. The economy narrowly averted a second straight contraction in the final quarter of 2023.
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 over quarter: minus 0.5 percent (minus 0.5 percent)
GDP annualized: minus 2.0 percent (minus 2.0 percent)
GDP year over year: minus 0.3 percent (minus 0.2 percent)
Private consumption: minus 0.7 percent (minus 0.7 percent)
Business investment: minus 0.7 percent (minus 0.8 percent)
Public investment: plus 3.5 percent (minus 3.1 percent)
Private sector inventories: plus 0.2 point (plus 0.2 point)
Net exports (external demand): minus 0.3 point (minus 0.3 point)
Domestic demand: minus 0.2 point (minus 0.2 point)
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.
