Japan Q3 GDP Growth Seen Slowing to 0.3%
Japan’s economy is forecast to have grown at an annualized 0.3% in July-September, down from 1.4% in the previous quarter, as weaker consumption and external…
TOKYO — Japan Q3 GDP growth is forecast at an annualized 0.3% for July-September, according to the median estimate in a poll of 16 economists, as weaker consumption and external demand offset a recovery in capital spending.
The projection marks a slowdown from the 1.4% expansion in April-June. Growth would still extend Japan’s run of quarterly increases to a fourth consecutive quarter. Without annualization, economists put the quarter’s growth rate at 0.1%.
The forecast points to a split in the economy: business investment is expected to recover, while household spending and trade pull in the opposite direction. Private consumption accounts for more than half of Japan’s GDP, making its expected decline a substantial drag on the overall estimate.
What is weighing on Japan Q3 GDP growth?
Private consumption is forecast to have fallen 0.2% in July-September, which would be its first contraction in seven quarters. The expected decline reflects weakness across some categories of household spending, despite firm service consumption.
Analysts at SMBC Nikko Securities said in a note: “Service consumption was firm in July-September ... but durable goods consumption contracted due to policy-related factors, while non-durable goods consumption was weak because of the negative impact of rising inflation.”
That mix matters for the growth outlook because household consumption represents more than half of Japan’s economic output. The forecast suggests consumer spending could reduce growth even as companies increase investment. Rising inflation was identified by the analysts as a factor weighing on purchases of non-durable goods.
Investment rebounds as external demand turns negative
Capital expenditure is expected to have grown 1.5%, reversing the previous quarter’s 0.9% decline. The recovery in spending by businesses offers some support, but the poll’s overall estimate remains modest because consumption and net external demand are forecast to weaken.
Net external demand, which measures exports minus imports, is expected to subtract 0.4 percentage points from GDP growth. It added 0.5 percentage points in the previous quarter. Analysts said external demand likely turned negative as imports rose, reflecting progress in alternative crude oil procurement.
The shift in trade’s contribution means higher imports are expected to weigh on the growth calculation. At the same time, the analysts linked the increase to progress in securing crude oil through alternative procurement. The poll therefore describes a quarter in which investment improved, but that support was offset by softer domestic spending and a negative contribution from external demand.
The growth reading will also be among the factors considered by the Bank of Japan when it decides whether to raise interest rates further. Many analysts expect the next rate hike as soon as next month, making the coming GDP figures relevant to the policy debate as well as the assessment of household and business activity.
The government will release preliminary third-quarter GDP data at 8:50 a.m. The official figures will show how the July-September estimate compares with the poll’s forecast of 0.3% annualized growth.
