The gloss went off Japan’s ostensibly solid economic rebound with the final estimate of first quarter GDP more than halved as statisticians slashed their previous figures for the strength of domestic demand and business inventories.
The extensive revisions raise the question of whether the first estimate was accurate enough for release.
The Cabinet Office said March quarter GDP grew a revised 1% annualised, down from the first estimate of 2.2% and well under the market forecast for a 2.4% rate. Quarter-on-quarter GDP growth was revised down to 0.3%, from 0.5% and half the market forecast.
Economists had expected a boost from the forecast revision to GDP after fourth-quarter growth for 2016 was revised upward on the back of stronger capital expenditure, and a recent report from the Ministry of Finance revealed capital spending growth had jumped to a two-year high in the first three months of 2017.
Emphasising the impact of the revision (and the confusion it has raised), The fall came despite the upward revision to first quarter capital expenditure compared to the December quarter.
Growth was revised to 0.6% from an initial estimate of just 0.2%, topping forecasts for a revision to 0.5%.
Seeing business investment is one of the traditional drivers of Japanese economic growth, the confusion from the downgrade is further amplified, so now it is back to a bit of number crunching on just what is happening in the private sector.
Economists say the confusion will concern the Bank of Japan which meets on June 15-16. The central bank had been basking in the reflected glories of rising inflation, record low unemployment, rising exports and tentative signs of a more sustained level of household spending as results of its expansive monetary police stance – which includes quantitative easing and negative interest rates.
But the revisions now suggest that the heralded rebound in domestic demand is not happening or rather, is weaker than previously thought and that once again the pull from reviving exports is now enough.
The key changes came from quarter-on-quarter growth in private demand, which was revised back to just 0.2% from the initially reported 0.5% rise.
Private consumption growth (which accounts for 60% of the Japanese economy), was cut to a rise of 0.3% from 0.4%, private residential investment was lowered from 0.7 per cent growth to just 0.3% and inventories switched from growth of 0.1% to a fall of 0.1% quarter-on-quarter terms. The revisions also erased a preliminary reading of 0.1% growth in public demand to indicate no change from the December quarter.
Domestic demand contributed 0.1 percentage point to growth, against the initial estimate of a 0.4 percentage point. Net exports added 0.1 percentage point to growth, unchanged from the preliminary estimate.
