---- by Yasuhiko Seki ----
TOKYO (AFX-ASIA) - Japan's real GDP for the three months to March will come in at between a fall of 0.2 pct and a rise of 0.8 pct over the previous quarter, led by solid capital spending despite sharp downturn in export conditions, analysts said.
The Cabinet Office will release GDP data on June 11. In the three months to December, GDP grew by 0.7 pct quarter-on-quarter, or by an annualised rate of 3.0 pct.
Economists said net exports are expected to exert downward pressure on quarterly GDP data due to the deterioration of global markets, and the U.S. economy in particular.
However, the filling out of order backlogs and relatively strong interest in software-related investment is likely to have kept corporate capital spending afloat.
"Corporate capital spending, thanks to high levels of backlog orders and buoyant software investment, seem to have maintained the solid increase in fixed asset investment," Industrial Bank of Japan economist Tomonobu Wakabayashi said.
IBJ forecasts a first quarter GDP rise of 0.3 pct over the previous quarter, led by a 1.2 pct gain in non-residential investment. In the three months to December, non-residential investment gained by 6.7 pct quarter-on-quarter.
NLI Research Institute economist Taro Saito said that although non-residential investment rose in the first quarter, the trend will come to a halt as early as next quarter on deteriorating corporate sentiment and earnings.
"The rise (in the first quarter) simply reflects the implementation of backlog orders that were received in late 1999 and 2000," he said. NLI forecasts a first quarter GDP rise of 0.4 pct over the previous quarter, led by a 2.3 pct gain in non-residential investment.
According to a recent survey of 4,540 firms conducted by the Cabinet Office, Japanese firms planned overall capital spending to rise 8.2 pct quarter-on-quarter in the three months to March 2001.
But Cabinet Office economist Haruhito Arai said there is the chance of a "sharp downward revision" to the January-March outcome, citing a more rapid than expected deterioration of global information technology demand.
NLI's Saito said: "Judging from such leading indicators as machinery orders, non-residential investment may fall into an outright falling trend by around the summer ... in a delayed reaction to the peaking-out of the overall economy."
NLI forecast non-residential investment to fall 1.4 pct in the second quarter from the current quarter, resulting in a 0.3 pct decline in overall GDP.
The Cabinet Office recently forecast private sector machinery orders in the second quarter to rise 0.4 pct from the previous quarter after falling 7.0 pct in the three months to March.
Analysts were divided over the impact of the introduction of a new recycling act, which forces consumers to pay certain fees to dispose of home appliances from April and cause a rush on purchases of such items.
"If there had been no surge in demand in the run-up to the new act, consumer spending might have stayed almost flat from the previous quarter," NLI's Saito said.
NLI estimates the implementation of the recycling act inflated consumer spending by 0.3 percentage points and the overall GDP by 0.2 points.
The research institution forecast consumer spending rose 0.3 pct quarter-on-quarter in the three months to March. In the three months to December, consumer spending declined by 0.6 pct.
However, Saito played down the significance of the rise, saying: "We should be alert to the downturn in the current quarter and the emergence of the adverse impact of the deterioration of labour and wage conditions."
NLI forecasts a sharp drop in outlays on home appliances may slash overall consumer spending by 0.5 percentage points in the three months to June.
However, Nomura Research Institute economist Masaki Kuwabara said consumer spending is expected to maintain its recovery trend, citing the relatively strong incentives to hire new employees in the non-manufacturing sector.
Ministry of Public Management, Home Affairs, Posts and Telecommunications data showed unemployment in April rose to 4.8 pct from 4.7 in March, although service sector workers rose 290,000 to 17.59 mln from a year earlier.
Nomura Research forecast first quarter GDP fell 0.2 pct from the previous quarter, hit by a 0.7 pct decline in consumer spending, attributing this mainly to statistical problems related to the base data for GDP.
"The number of surveyed households is so few and data fluctuations are so great that we can not take it at a face value," Kuwabara said. The public sector emerged as a key growth driver in first quarter due to the implementation of public works projects included in the more than 11 trln yen economic stimulus package announced in October last year.
Economists forecast public investment grew 1.5-5.7 pct in the first quarter from the previous quarter. In the quarter to December, public sector investment rose 0.8 pct, contributing 0.1 percentage points to growth.
However, Tsubasa Research Institute economist Yasuaki Kudamatsu said public spending "will remain a negative contributor in the full year due to the fading impact of the package and declines in public works by municipal governments."
Tsubasa Research forecast a 0.5 pct rise in the first quarter GDP over the previous quarter, with public investment jumping 4.6 pct quarter-on-quarter.
Meanwhile, local economists forecast that net exports cut GDP by between 0.2 and 0.8 percentage points, in line with the rapid set-back in IT demand, particulary in the U.S.
Japan saw a 52.6 pct year-on-year fall in its goods and services account surplus to 969.7 bln yen in the first quarter after a 32.0 pct drop to 1.26 trln yen the previous quarter, according to the Ministry of Finance.
However, Daiwa Institute of Research economist Junichi Makino said the negative contribution from net exports might have already turned a corner, adding that there is a good chance that this factor will become neutral shortly.
DIR forecast a 0.8 pct rise in first quarter GDP from the previous quarter, overcoming a 0.2 point negative contribution from net exports. Net exports in the fourth quarter contributed 0.4 percentage points to growth.