Japan: Advanced third quarter GDP figures disappoint – UOB

Alvin Liew, chief economist at UOB Group, analyzes the latest GDP figures in Japan.

Main conclusions

Japan’s first preliminary estimate of GDP for the third quarter of 2023 disappointed, as the economy contracted more than expected, by -0.5% quarterly (-2.1% quarterly at an annualized rate), while second quarter annualized growth revised downward to 4.5% (from the previous estimate of 4.8%). This is Japan’s first sequential decline since the strong rebound in the first half of 2023, as almost all major components of the economy – including private consumption, business spending and net exports – faltered in the third quarter except the public consumption.

Japan GDP Outlook – Entering a technical recession Our growth prospects for Japan continue to be weighed down by weak domestic demand, the uncertain outlook for external demand and nervousness in financial markets regarding the tightening of monetary policies in advanced economies, although they are seen cushioned in part by bullish factors such as improved tourism and the positive impact on in-person services. Japan’s outward-facing manufacturing and services sectors continued to face difficulties, and at the same time, risks from a persistently weaker yen and more expensive energy raw materials could once again send Japan’s import bill soaring, which in turn would harm net exports and reduce GDP growth. An influx of foreign tourists and a weaker yen have helped Japan’s services sector perform better and strengthen the domestic recovery, but downside risk appetite for services depends on the extent of the global growth slowdown. and China, and Japan’s services PMI has seen its upward trend clearly attenuate in recent months. For now, we maintain our GDP growth forecast for 2023 at 1.5%, compared to the 0.9% growth rate recorded in 2022. We expect growth to slow further to 1.0% in 2024.