TOKYO (AFX-ASIA) - The Cabinet Office said it revised third quarter to September GDP to a quarter-on-quarter fall of 0.6 pct from the previous estimate of a 0.2 pct rise.
On an annualised basis, September quarter GDP was revised to a fall of 2.4 pct from the previous estimate of a 1.0 pct rise, it said.
An AFX survey of private sector economists had earlier forecast third quarter GDP would come in at a fall of 2.4-2.9 pct on an annualised basis.
The revision, which fell within the range of forecasts, was the largest restatement of the data since the Cabinet Office began to compile it in its current form in 1978, a senior Cabinet Office official said.
Katsuki Oda, director of the national accounts department of the Economic and Social Research Institute, a research arm of the Cabinet Office, said the 0.8 percentage point revision in the quarter-on-quarter data exceeded the previous record revision of 0.4 percentage points made to the September quarter GDP figure in 1998. The Cabinet Office attributed the new record downgrade to weak capital spending data shown in the Ministry of Finance's (MoF) quarterly survey released in December.
The preliminary GDP data had been calculated based on the Cabinet Office's quarterly report, which has relatively narrower coverage than the MoF survey.
The December MoF survey showed that overall capital spending rose by only 0.2 pct year-on-year in the September quarter, compared with a 9.3 pct year-on-year rise in the Cabinet Office survey.
The Cabinet Office used its own quarterly survey in calculating the preliminary GDP data for the September quarter as the MoF figures were not available at that time.
But some economists have questioned the accuracy of the capital spending data, even in the MoF survey.
"We understand that compared with the outcome in other investment data, the showing in the MoF survey is comparatively weak," Oda said. "But we have no evidence to contend that the data was abnormal." As a result of the switch to the MoF data from its own data, capital spending rose by only 1.5 pct quarter-on-quarter in the three months to September, down from the 7.8 pct gain shown in the preliminary GDP estimate.
Yoshihiko Senoo, director of the business statistics department of the Economic and Social Research Institute, said: "The ability of the IT sector, which has been leading the recovery of overall capital spending, is weakening gradually."
He also cited a slowdown in external demand, particularly in the U.S., and sharp declines in share price levels as key factors discouraging capital spending.
Naoki Murakami, economist at BNP Paribas, said the revision to the September quarter GDP data, which was in line with his expectations, was mainly due to private investment, adding that weakening capital expenditure means the growth of the Japanese economy will be heavily dependent upon growth rates elsewhere in the world, particularly the U.S..
"We cannot look for internal factors to revive the Japanese economy, only external factors, and whether the U.S. will recover quickly."
HSBC senior economist Peter Morgan also pointed to external factors as the key to Japan's future growth.
"This raises the vulnerability of the economy to other shocks such as weakening exports."
"Although there are doubts about the reliability of the MoF data ... they suggest that the recovery trend of private capital spending is not very strong, mainly due to weakness in non-manufacturing sectors," he said in a note.
Morgan said he does not plan to revise his GDP forecasts as a result of today's data, though he will be cutting his year to March 2001 and 2002 forecasts after "the substantial downward revision of HSBC's growth forecast for the U.S. this year from 2 pct to zero." Morgan warns the preliminary December quarter GDP data could be in for a major revision as well once it is released.
"The latest ... (Cabinet Office) survey showed very strong private capital spending growth in the fourth quarter of 11.3 pct quarter-on-quarter, although (this) could be revised down later. "If this forms the basis for the preliminary GDP estimate, and the MoF numbers subsequently come out much weaker, this could lead to the same sort of massive downward revision of the fourth quarter data. "This makes use of the preliminary GDP estimates very problematic."
For this reason, Morgan said, it will be interesting to see whether the preliminary GDP figures for the December quarter are released ahead of the MoF corporate survey.
BNP Paribas' Murakami said he expects December quarter GDP growth to be flat quarter-on-quarter with a likely temporary revival in capital expenditure being offset by a fall in consumption.
Given the revision to the September quarter GDP data, Japan needs 0.4 pct quarter-on-quarter GDP growth in the remaining two quarters of the financial year to achieve the government target of 1.2 pct growth for the year to March 2001, the Cabinet Office said.