Slower Corporate Spending Slows Down Japan’s Economy In Fourth Quarter

A slower-than-initially-reported growth was reported for the Japanese economy for the October-December quarter as companies reduced expenditure on plant and equipment while also sharply cutting down on inventories as consumer demand was hit by the cxovid-19 pandemic.

Even though exports remained strong, a more than predicted contraction in private inventories and lower than expected expenditure in capital spending by companies for the fourth quarter accounted for the slower growth.

In January, a bigger annual drop was reported in household spending compared to the previous month, showed separate data, which reflected the trend of consumers remaining cautions of shopping more because of the pandemic related insecurity.

For the October-December quarter, the economic growth of Japan was at annualised 11.7 per cent while an annualized growth rate of 12.7 per cent was estimated preliminarily for the quarter – which would be the second straight quarter of growth, according to Cabinet Office data.

Compared to economists’ median forecast for a 12.8 per cent gain, this weak reading for the quarter actually translates into a real quarter-on-quarter expansion of 2.8 per cent for the aforesaid quarter compared to a previously estimated growth rate of 3.0 per cent.

There was a 4.3 per cent quarter on quarter growth in capital spending which was lower than the preliminary estimates of 4.5 per cent growth. The growth was however higher than the median forecast of a 4.1% per cent growth.

A 0.6 percentage point from revised growth domestic product growth (GDP) was subtracted by private inventories, including raw materials and manufactured products, which was worse compared to a negative preliminary contribution of 0.4 percentage point.

“Although vaccination started in Japan, it will take time to yield its impact, so the economy is forecast to go through some ups and downs,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“We expect the economy will pick up from the second quarter but it will be difficult to regain soon what it will lose in the first quarter.”

There was a 2.2 per cent quarter on quarter growth in private consumption which accounts for more than half of GDP of Japan which was ion ;line with previous reading for the quarter.

There was a 1.1 per cent growth in net exports — or exports minus imports for the revised GDP while there was a 1.8 per cent growth in domestic demand which was less than the preliminary estimates of growth of 2.0 per cent.

In January 2021 however there was a pickup in exports and factory output after the worse-than-expected GDP revision for the last quarter. The January figure indicates a stronger recovery in global demand after the deep slump last year because of the pandemic.

In January however there was a 6.1 per cent drop in household spending compared to the same month a year ago, according to official data. That was lower than expected by economists.

There are concerns among experts that the slow down in corporate investment and household spending could last for a longer period than expected which also indicates bad demand and could also make a domestic growth driver weak for the third largest economy of the world.

(Adapted from CNBC.com)



Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability

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