Second Preliminary Estimate of 1Q 2013 GDP

◆In the second preliminary estimate of Jan-Mar (1Q) 2013 GDP (Cabinet Office), real GDP was +1.0% q/q, annualized at +4.1%, posting an upgrade from the first preliminary estimate (up 0.9%; up 3.5%), and slightly overshooting market expectations (up 0.9%; up 3.5%). Behind this was an upswing in inventories, meaning it was not particularly favorable.

◆By GDP demand component, capex saw an upgrade from the first preliminary estimate (from down 0.7% q/q to down 0.3%), after factoring in figures in Financial Statements Statistics of Corporations by Industry for 1Q 2013 (Ministry of Finance [MOF]). However, given the persistent q/q decline, stagnation in capex will likely continue. Inventory investments also saw an upgrade (contribution to real GDP growth: down 0.2 points to down 0.0 points) after factoring in MOF statistics, which was a major factor for the upward revision to the real GDP.

◆The uptrend in GDP is likely to continue in Apr-Jun and beyond, moving toward full-fledged recovery. Exports finally began bottoming out and are likely to move toward an uptrend, supported by improvement in overseas economies, and given that benefits from a weaker yen since end-2012 will start to materialize. Although capex is still stagnant, higher corporate earnings and production driven by higher exports should boost capex gradually. At the same time, the improvement in corporate earnings should have positive effects on the environment surrounding household income, supporting personal consumption. Thus, we expect balanced growth to be seen among the household sector, corporate sector, and foreign demand in Apr-Jun and beyond. We anticipate the economy gradually gaining momentum in FY13, supported by such a cyclical recovery and other factors including (1) public investment decelerating to some extent but likely accelerating again reflecting approval of the FY12 supplementary budget by the Diet at end-February 2013, and (2) personal consumption and housing investment probably seeing forward-loaded demand emerging toward end-FY13, prior to the expected tax hike in April 2014.