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Japan O4 GDP revised up as investment rebounds but trade clouds outlook


The Japanese economy grew faster than initially estimated in the fourth quarter as capital investment staged a quick recovery from a series of natural disasters

However, despite the upward revision to growth, economists are likely to temper their optimism on the outlook given disappointing data on exports and factory output and with the economy expected to weaken due to the Sino-US trade war.

Japan’s GDP rose an annualized 1.9% in October-December, more than the initial estimate of a 1.4% expansion and the median estimate for a 1.8% increase, revealed data from the Cabinet Office.

That followed a revised 2.4% annualised contraction in the third quarter, which was the biggest decline in more than four years. Economists warned that capital expenditure and overall economic growth are likely to weaken in the first half of this year as exports dwindle and inventories pile up due to a slowdown in global trade.

“Capital expenditure did very well, but we see an increase in inventories in the fourth quarter that points to weak sales,” stated Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

“Falling exports will hit growth in the first quarter. The first half of this year will be weak, but I don’t expect a recession.”

The revised figure translates into quarter-on-quarter growth of 0.5% in price-adjusted terms. This is more than a preliminary reading of 0.3% and economists’ median estimate of a 0.4%.

The capital expenditure component of GDP rose 2.7% from the previous quarter, marking the fastest expansion since January-March 2015. That was slower than the median forecast for 2.8% but faster than the preliminary 2.4% expansion.

The value of inventories rose by $1.41bn in the fourth quarter, the second consecutive quarter of gains as inventories of raw materials and partially finished goods piled up.

Private consumption, which accounts for roughly 60% of GDP, rose 0.4% in Q4, less than the preliminary 0.6% increase.

Net exports – or exports minus imports – contributed minus 0.3% point, unchanged from preliminary data.

Domestic demand added a revised 0.8% point to GDP, more than a preliminary reading of a 0.6% point contribution.

Separate data on Friday showed household spending rose 2% YoY in January, more than the median estimate for a 0.4% annual contraction, which may ease concerns about domestic demand.

Real wages in January rose 1.1% YoY in January, matching the same pace of growth in the previous month, the labour ministry said on Friday.

The United States last year imposed tariffs on $250bn worth of goods imported from China, with Beijing hitting back with duties on $110bn worth of American products, including soybeans and other commodities.

In a recent sign negotiations to resolve the eight-month trade war were progressing, US President Donald Trump has delayed tariffs on $200bn worth of Chinese imports.

However, even if the two sides strike a trade agreement, the damage to global trade and Japan’s economy may take time to repair with uncertainty about trade policies hurting sentiment and disrupting manufacturers’ supply chains.

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