Japan’s Q4 GDP growth revised away

Chris Scicluna
Emily Nicol

Japan’s Q4 GDP growth revised away on softer household consumption
As we had expected, the second release of Japan Q4 GDP figures revised away the disappointingly modest growth initially reported (0.2%Q/Q). While this left GDP up 0.4%Y/Y – a touch firmer than the BoJ’s estimate for potential growth – and 0.8% above the pre-pandemic level in Q419, it was nevertheless still more than 1% below the 2019 average. And the impact of higher prices on activity was clearly evident, with nominal GDP in Q4 up 1.2%Q/Q and 1.6%Y/Y.

The cause of the revision in Q4 was somewhat unusual, with household consumption now estimated to have risen a more moderate 0.3%Q/Q, with declines in expenditure on semi- and non-durable goods partially offsetting stronger spending on services (1.2%Q/Q) and durable goods (2.4%Q/Q). This left consumption up just 1.1%Y/Y, compared with an increase of 4.7%Y/Y in nominal terms. As in the first estimate, private sector capex fell for the first quarter in three (-0.5%Q/Q), and despite being revised slightly higher, residential investment merely moved sideways having contracted in the previous five quarters to leave it some 13% below the pre-pandemic level. Private sector inventories also subtracted significantly in Q4 (-0.5ppt). And so it was only thanks to a notable contribution from net exports (0.4ppt), with exports growth (1.5%Q/Q) benefitting from a return of overseas visitors and imports slipping back amid softer domestic demand (-0.4%Q/Q), that GDP growth didn’t slip into negative territory at the end of last year. Looking ahead, our colleagues in Tokyo expect the near-term economic recovery to be restrained by subdued household expenditure as purchasing power continues to be eroded by higher prices. However, their forecast of growth of 0.4-0.5%Q/Q in the first two quarters of 2023, before a slight moderation to around 0.3%Q/Q in the second half of the year, would still be above the economy’s subdued potential rate.

Chinese inflation remains subdued in February with big downside surprise to CPI
While economic activity has strengthened somewhat with the end of the zero-Covid policy, Chinese inflation remained subdued in February with continued mild deflation at the factory gate and a big downside surprise to consumer price inflation, both in part reflecting an easing in food and broader commodity prices. In particular, the headline CPI rate fell 1.1ppts to a 12-month low of just 1.0%Y/Y. That benefited in part from a drop of 3.6ppts in food inflation to a 9-month low of 2.6%Y/Y, with prices of meat and vegetables alike falling. However, non-food inflation also moderated further, down 0.6ppt to a 2-year low of 0.6%Y/Y, as prices of transportation, culture and recreation fell, perhaps reflecting this year’s earlier Lunar New Year holiday. Meanwhile, Chinese PPI data suggested a further easing of cost pressures for manufacturers, with the headline rate down 0.5ppt to -1.4%Y/Y, the lowest since late 2020, with all major components softer. Among other items, inflation of raw materials fell more than 1ppt to -1.3%Y/Y, while the consumer goods PPI rate fell 0.4ppt to 1.1%Y/Y as the rate for consumer durables dropped 0.5ppt to -0.2%Y/Y. Consumer and producer price inflation should remain subdued over coming months before picking up somewhat in the second half of the year as the post-Covid recovery gains traction.

RICS survey suggests UK home prices continue to fall but hints of slight improvement in dynamics
The RICS residential market survey results for February were undeniably soft, with almost all key indicators still firmly in negative territory. Indeed, the headline national house price indicator dropped another couple of points to -48.4, the lowest since the first half of 2009, with the RICS also reporting that selling prices were typically being agreed with a discount of about 5% off asking prices. But there were hints of slightly less unfavourable momentum, with new buyer enquiries (up 16pts to -29) and new vendor instructions (up 8pts to -4) both less negative to suggest a better functioning market. The index of agreed sales was also the least negative since August. And with sales expectations also a touch less negative (up for the second month, albeit to a still-low -47), price expectations three (-54.6) and twelve months (-27.2) ahead were also the least unfavourable since October and September respectively. Nevertheless, these indices still point to non-negligible further declines in house prices over the near term that might be expected to leave the peak-to-trough percentage drop close to double-digits.

BoF economic update implied GDP growth of 0.1%Q/Q in Q1
According to the latest Bank of France economic update published yesterday evening, the French economy is performing slightly better than previously expected in the first quarter of the year. Firms in the industrial and services sectors reported a further increase in activity in February and anticipated further growth this month too. But despite a further notable easing in supply difficulties, the outlook for construction activity was less upbeat, with firms signalling little growth in February and forecasting a slight decline in March. Overall, the BoF estimates that GDP growth remained positive in Q1, up around 0.1%Q/Q. As such, BoF Governor Villeroy this morning confirmed that the Bank of France will raise its 2023 GDP forecast from 0.3%Y/Y published in December, further supporting our view that the ECB will also have a stronger GDP forecast in its updated economic projections next week. Encouragingly, with the exception of the food subsector, the proportion of manufacturers raising prices fell back this month, from 32% to 24%.

US Challenger job cuts and weekly jobless claims numbers due
Ahead of tomorrow’s US payroll figures, today will bring the latest Challenger job cuts numbers for February, as well as the usual weekly jobless claims figures for the first week of March. The Fed’s flow of funds numbers for Q4 are also due.

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