| Consensus | Actual | Previous | |
|---|---|---|---|
| Quarter over Quarter | -0.5% | -0.7% | -0.5% |
| Annual Rate | -1.8% | -2.9% | -1.8% |
| Year over Year | -0.1% | -0.7% | -0.1% |
Highlights
In a rare second revision, Japan's gross domestic product for the January-March quarter confirmed the economy posted its first contraction in two quarters, down 0.7 percent on quarter versus a 0.5 percent drop in earlier estimates, and the annualized decline was revised down sharply to minus 2.9 percent -- all from much weaker public works spending -- after an upward revision to minus 1.8 percent from the initial estimate of 2.0 percent contraction.
The Cabinet Office based the latest estimate on revisions to recent data of construction investment. It had warned that this could affect the GDP components of private housing, private capital investment and public works spending, prompting some economists to predict a downward revision to GDP.
Domestic demand trimmed the first quarter GDP by 0.4 percentage points, revised down from a negative 0.1 point in the first revision, after it lowered the fourth quarter GDP by a revised 0.2 points. Public works spending, which now showed a 1.9 percent fall (a negative 0.1 point contribution), instead of the previous estimate of a 3.0 percent rebound (positive 0.2 points), added to the downward pressure from a pullback in business investment, down 0.4 percent, and weak consumer spending, down 0.7 percent.
Net exports of goods and services -- exports minus imports -- made a negative 0.4 percentage point contribution to the total domestic output, as seen in the first revision.
The bigger picture is the same: 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. In the latest estimate, the fourth quarter showed zero growth on quarter, or an annualized 0.1 percent increase, revised down from the previous estimate of a 0.1 percent rise on quarter (annualized 0.4 percent). 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 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 0.7 percent in January-March for the first drop in three years, compared to a 0.1 percent drop in the first revision and a preliminary 0.2 percent decline, following a revised 1.0 percent rise in October-December.
Econoday's Relative Performance Index stands at zero, which indicates the Japanese economy is performing as expected after outperforming recently. Excluding the impact of inflation, the RPI was 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 based the latest estimate on revisions to recent data of construction investment. It had warned that this could affect the GDP components of private housing, private capital investment and public works spending, prompting some economists to predict a downward revision to GDP.
Domestic demand trimmed the first quarter GDP by 0.4 percentage points, revised down from a negative 0.1 point in the first revision, after it lowered the fourth quarter GDP by a revised 0.2 points. Public works spending, which now showed a 1.9 percent fall (a negative 0.1 point contribution), instead of the previous estimate of a 3.0 percent rebound (positive 0.2 points), added to the downward pressure from a pullback in business investment, down 0.4 percent, and weak consumer spending, down 0.7 percent.
Net exports of goods and services -- exports minus imports -- made a negative 0.4 percentage point contribution to the total domestic output, as seen in the first revision.
The bigger picture is the same: 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. In the latest estimate, the fourth quarter showed zero growth on quarter, or an annualized 0.1 percent increase, revised down from the previous estimate of a 0.1 percent rise on quarter (annualized 0.4 percent). 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 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 0.7 percent in January-March for the first drop in three years, compared to a 0.1 percent drop in the first revision and a preliminary 0.2 percent decline, following a revised 1.0 percent rise in October-December.
Econoday's Relative Performance Index stands at zero, which indicates the Japanese economy is performing as expected after outperforming recently. Excluding the impact of inflation, the RPI was 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.
Market Consensus Before Announcement
In a rare move, the Cabinet Office will release revisions to the second preliminary (revised) GDP data for the January-March quarter, reflecting revisions to recent data of the quick estimate of construction investment made by the Ministry of Land, Infrastructure, Transport and Tourism. This could affect the GDP components of private housing, private capital investment and public works spending, potentially leading to a downward revision to the latest GDP estimate.
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.
