Japan 2017 Q4 GDP estimates: Upward revisions mainly in capex - Nomura

Takashi Miwa, Research Analyst at Nomura, notes that the second set of preliminary GDP estimates for 2017 Q4 (Oct-Dec) of Japan, released by the Cabinet Office on 8 March, showed real GDP up 1.6% q-q annualized.

Key Quotes

“This marks an upward revision from the 0.5% growth in the first set of preliminary estimates and is higher than the consensus forecast (Bloomberg survey median) of +1.0%. One factor behind the upward revision is that the estimate for real capex was revised up from +0.7% q-q in the first preliminary estimates to +1.0% to reflect newly released data such as the Financial Statements Statistics of Corporations by Industry.”

“Fifth consecutive quarter of q-q annualized growth over 1%

Q4 thus marks a fifth consecutive quarter of q-q annualized growth surpassing 1%, a streak which began in 2016 Q4 (Oct-Dec). In our view, this shows that the Japanese economy has maintained firm growth, supported mainly by overseas demand reflecting the recovery in the global economy since mid-2016. Another factor behind the upward revision to the Q4 real GDP growth figure was a revision to the estimate of the q-q contribution from private-sector inventories from -0.1ppt to +0.1ppt, but as we see this as a proactive inventory buildup in reaction to solid end demand, particularly from overseas, we do not see it as a sign of an impending peak in cyclical growth.”

“Possibility of temporary slowdown in 2018 Q1

The Japanese economy has thus maintained real GDP growth surpassing the potential growth rate (which we see at 0.5-1.0%) for over a year, but we see the possibility of a temporary slowdown in real growth in Jan-Mar 2018. We base this view on recent weak indicators, particularly in statistics related to household consumption such as the 2.4% m-m decline in real retail sales in January 2018. We would note, however, that this weakness is probably attributable in part to heavy snowfall and other unfavorable weather conditions in January in some regions, and we think it would be premature to conclude that there has been any fundamental change in the trajectory of the Japanese economy.”