Japan's gross domestic product for the January-March quarter posted its first contraction in four quarters, down 0.2% on quarter, or an annualized 0.7%, in payback for a technical jump in net exports in the previous quarter but also hit by flat consumption amid high costs of living and the murky outlook for global growth triggered by the protectionist U.S. trade policy. It was slightly weaker than the median economist forecast of a 0.1% dip (annualized -0.4%).

The GDP slip followed the 0.6% rise (annualized revised up slightly to 2.4% from 2.2%) in the October-December quarter, when the solid growth was led by a technical rebound in net exports that was caused by a sharper-than-expected slump in imports and masks weak exports and domestic demand. It also came after the U.S. economy recorded its first contraction in three years in Q1, down an annualized 0.3%, shrinking after the 2.4% expansion in Q4, largely due to rush imports ahead of stiff Trump tariffs.

Domestic demand provided a positive 0.7 percentage point contribution (vs. consensus +0.4 point) to total domestic output in Q1, propped up by firmer-than-expected capex and a rise in private-sector inventories, after trimming Q4 GDP by a revised 0.1 point and boosting it by 0.5 point in Q3. By contrast, external demand (exports minus imports) lowered the Q1 GDP by 0.8 point (vs. consensus -0.6 point) after adding 0.7 point to the growth in the previous quarter.

Looking ahead, Japan's economic performance in the April-June quarter is expected to remain subdued, likely marking the second straight contraction, as consumers stay frugal amid falling real wages, external demand remains uncertain and firms are still cautious about implementing their solid capex plans amid the global trade war instigated by the Trump administration.

The 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:

GDP q/q: -0.2% (+0.6%); 1st drop in 4quarters
GDP annualized: -0.7% (revised up to +2.4% from +2.2%); 1st drop in 4quarters
GDP y/y: +1.7% (revised up to +1.3% from +1.1%); 3rd straight rise
Domestic demand: +0.7 point (revised up to -0.1 point from -0.2 point); 1st rise in 2quarters
Private consumption: +0.0% (revised up to +0.1% from +0.0%); flat after third rise in a row
Business investment: +1.4% (revised up to +0.8% from +0.6%); 4th straight rise
Public investment: -0.4% (-0.7%); 3rd straight drop
Private inventories: +0.3 point (-0.3 point); 1st rise in 2 quarters
Net exports (external demand): -0.8 point (+0.7 point), 1st drop in 2 quarters

Japan's gross domestic product for the January-March quarter is forecast to post its first contraction in four quarters, down a slight 0.1% on quarter, or an annualized 0.4%, in payback for a technical jump in net exports in the previous quarter but also hit by sluggish consumption amid high costs of living and the murky outlook for global growth triggered by the protectionist U.S. trade policy. From a year earlier, the Q1 GDP is forecast to have posted the third straight increase, up 1.6%, after a 1.1% gain.

The expected GDP slip would follow the 0.6% rise (annualized 2.2%) in the October-December quarter, when the solid growth was led by a technical rebound in net exports that was caused by a sharper-than-expected slump in imports and masks weak exports and domestic demand. It would also come after the U.S. economy recorded its first contraction in three years in Q1, down an annualized 0.3%, shrinking after the 2.4% expansion in Q4, largely due to rush imports ahead of stiff Trump tariffs.

Domestic demand is expected to provide a positive 0.4 percentage point contribution to total domestic output in Q1 after trimming Q4 GDP by 0.2 point and boosting it by 0.5 point in Q3. External demand (exports minus imports) is estimate to have lowered the Q1 GDP by 0.6 point after adding 0.7 point to the growth in the previous quarter.

Looking ahead, Japan's economic performance in the April-June quarter is expected to remain subdued, likely marking the second straight contraction, as consumers stay frugal, external demand remains uncertain and firms are still cautious about implementing their solid capex plans amid the global trade war instigated by the Trump administration.

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:

GDP q/q: -0.1% (+0.6%); 1st drop in 4quarters
GDP annualized: -0.4% (+2.2%); 1st drop in 4quarters
GDP y/y: +1.6% (+1.1%); 3rd straight rise
Domestic demand: +0.4 point (-0.2 point); 1st rise in 2quarters
Private consumption: +0.1% (+0.0%); 3rd straight rise (1st clear rise in 2 quarters)
Business investment: +0.8% (+0.6%); 2nd straight rise
Public investment: -1.1% (-0.7%); 3rd straight drop
Private inventories: +0.2 point (-0.3 point); 1st rise in 2 quarters
Net exports (external demand): -0.6 point (+0.7 point), 1st drop in 2 quarters

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

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.