Second Preliminary Estimate of 2Q 2012 GDP

Capex/inventories downgraded but DIR economic outlook unchanged

RSS

September 10, 2012

  • Masahiko Hashimoto
  • Mitsumaru Kumagai

Summary

◆In the second preliminary estimate of Apr-Jun (2Q) 2012 GDP (Cabinet Office), real GDP was downgraded to an annualized gain of 0.7% (up 0.2% q/q) from the first preliminary estimate (up 1.4%; up 0.3%), slightly short of the market consensus (up 1.0%; up 0.3%), mainly reflecting downgrades to capex and inventory investments. No surprises were seen in GDP components and our economic outlook remains unchanged.


◆Capex was slightly downgraded to a gain of 1.4% q/q from the first preliminary estimate (up 1.5%) mirroring the fact that in Financial Statements Statistics of Corporations by Industry for Apr-Jun (Ministry of Finance; base statistics for capex in the GDP estimate) capex fell short of the projection made at the time of the first preliminary GDP estimate. However, the downgrade was relatively small, considering that capex posted negative q/q growth. The negative contribution of inventory investments to q/q growth in real GDP widened, reflecting lower q/q growth in work-in-process and inventories of raw materials/supplies in the statistics, compared to the projection made at the time of the first preliminary estimate.


◆We believe Japan’s economy will recover moderately supported by reconstruction demand related to the Great East Japan Earthquake. Meanwhile, we think overseas economies will gradually recover, supported by improvement in the US economy and Chinese and other emerging market economies, although EU economies will remain sluggish because of fiscal problems. However, Japan’s imports of resources are likely to remain high, and net foreign demand (exports minus imports) will be slow to improve in terms of contribution to GDP growth. Hence, domestic demand is likely to support Japan’s economy for the time being. At the same time, we should bear in mind four risks facing Japan’s economy: (1) any deepening of the European sovereign debt crisis, (2) higher crude oil prices stemming from geopolitical risks, (3) further appreciation of the yen, and (4) the current account balance turning to a deficit in the future.

Daiwa Institute of Research Ltd. reserves all copyrights of this content.
Copyright permission of Daiwa Institute of Research Ltd. is required in case of any reprint, translation, adaptation or abridgment under the copyright law. It is illegal to reprint, translate, adapt, or abridge this material without the permission of Daiwa Institute of Research Ltd., and to quote this material represents a failure to abide by this act. Legal action may be taken for any copyright infringements. The organization name and title of the author described above are as of today.