Commenting on Japan’s first quarter GDP report, Capital Economics said it expects the Japanese economy to slowdown in the second quarter.
First quarter GDP expanded by 0.6 percent quarter-over-quarter in the first quarter, faster than the 0.3 percent rise in the previous quarter, mostly due to a jump in inventories. The results was above the consensus estimate of a 0.4 percent increase and Capital Economics’ forecast of a 0.3 percent rise.
“However, the details were discouraging. To be sure, the 0.4 percent on quarter rise in private consumption broadly matched the increase observed in the previous quarter, and was stronger than expected. But net exports shaved off 0.2 percentage points from headline GDP growth. What’s more, a 0.5 percentage points boost from stock-building flattered the headline figure,” said Marcel Thieliant, an economist at Capital Economics.
Thieliant noted that the plunge in energy prices caused a sharp slowdown in the domestic demand deflator. The GDP deflator, in contrast, rose at the fastest pace in years. This somewhat counter-intuitive result reflects the fact that the GDP deflator strips out the cost of imports, he added. Import prices plunged by 8.3 percent year-over-year in the first quarter, the strongest fall since 2009.
The economist expects energy prices to remain broadly stable in coming months. The gap between the GDP deflator and the domestic deflator will therefore close again soon, similar to what happened in 2008/09, he added.
Looking ahead, the economist said a range of indicators point to a slowdown in the second quarter. Industrial production was 4 percent below its January peak in March, and the drop in the manufacturing purchasing managers index (PMI) to a multi-month low in April suggests that conditions are unlikely to improve quickly.
The economist stayed put to his forecast that Japan’s GDP growth will be close to zero this year, well below the consensus estimate of a 1 percent rise, before picking up to 1.5 percent in 2016, as consumers bring forward spending ahead of 2017 sales tax hike.
“However, today’s data suggest that the chances of near-term easing by the Bank of Japan have diminished. Nonetheless, with price pressures likely to remain subdued, more stimulus will be needed before too long, with the October meeting now the most likely venue,” Thieliant added.
The material has been provided by InstaForex Company – www.instaforex.com