Japan’s economy is expected to have contracted by an annualised 1.5% in the January-March quarter, according to a Reuters poll. This decline is likely due to all key drivers of growth taking a hit because of an uncertain outlook. The Cabinet Office data is set to be released on May 16, and it is anticipated that the economy’s contraction will be equivalent to a monthly decline of 0.4%, as indicated by the poll of 17 economists.
The growth in the last three months of 2023 was at 0.4% annualised, however, the main pillars of GDP have collapsed, leaving no growth engine for the January-March quarter. Takeshi Minami, chief economist at Norinchukin Research Institute, predicts that the overall economy will contract by 1.2% annualised in the January-March period. This contraction is driven by thrifty consumers tightening their belts amid rising living costs.
Private consumption, which accounts for more than 50% of the economy, likely fell by 0.2% in the quarter as consumers remained cautious. The earthquakes that struck the Noto peninsula earlier this year also undermined output and consumption. In addition, a scandal at Toyota’s compact car unit Daihatsu resulted in the suspension of output and shipments.
Capital expenditures also fell by 0.7% quarter-on-quarter as companies were slow to invest their profits in plants and equipment. External demand, or net exports, likely detracted 0.3 percentage points from GDP growth. The corporate goods price index is expected to have increased by 0.8% in April year-on-year, with persistent inflation affecting the costs of living and business operations.
The CGPI data is due to be released on May 14, showing a likely increase of 0.3% month-on-month in April. This slight acceleration from March underscores the continued inflationary pressures in the economy.