---- by Yasuhiko Seki ----
TOKYO (AFX-ASIA) - First quarter GDP forecasts have been revised down after the Ministry of Finance's quarterly survey on corporate capital spending showed a weaker-than-expected increase, economists said.
At the same time, however, economists noted the volatile nature of the investment data in the non-manufacturing sector, which might have little or nothing to do with the underlying trends.
Prior to the announcement of the survey results earlier today, local economists had forecast first quarter real GDP would come in at between a fall of 0.2 pct and a rise of 0.8 pct from the previous quarter.
The MoF survey showed total capital spending by 8,061 non-financial firms rose 2.5 pct year-on-year in the first quarter, after a 7.1 pct rise in the fourth.
Capital expenditure by manufacturers rose 22.6 pct year-on-year in the first quarter following a 10.4 pct gain previously, while non-manufacturers' capex fell 5.8 pct after a rise of 5.7 pct.
NLI Research Institute economist Taro Saito said his house has downgraded its forecast for first quarter GDP to a fall of 0.1 pct from the previous estimate of a 0.4 pct rise to reflect the new data.
"The MoF survey underscored that capital expenditure by manufacturers maintained a rising trend, as was indicated by machinery order data and in line with market expectations, while outlays by non-manufacturers fell at an unexpectedly rapid pace," Saito said. NLI now estimates that overall capital spending fell 0.7 pct quarter-on-quarter in the first quarter, compared with the 2.3 pct gain expected earlier.
"We may need to look at some technical factors, such as the leap year factor (in the previous year), when assessing the underlying trend of investment by non-manufacturers," Saito said.
Daiwa Institute of Research chief economist Suzumu Okano said it is premature to contend that capital investment by non-manufacturers has entered a serious downtrend judging only from today's MoF data. "The sharp decline in investment might have something to do with the exceptional high levels of outlays in the previous year," he said, citing sharp cut-backs in investment by the service and telecoms sectors.
DIR has, however, cut its forecast for first quarter to a quarter-on-quarter rise of a 0.6 pct from the previous estimate of 0.8 pct, in line with the reduction in the projection for non-residential investment to a fall of 0.2 pct from a rise of 1.0 pct given previously.
The MoF survey showed investment by the service sector dropped 14.3 pct year-on-year in the first quarter, while outlays by the transport/telecom sector were down 12.6 pct.
MCM Asia Pacific economist Kenji Arata played down the significance of the fall in the service sector, adding that "the actual trend was not so bad as it looks.
"We should not over-estimate the extent of the decline here, which was a reflection of high levels of outlays in the ... the previous year," he said.
However, MCM has cut its first quarter GDP estimate to an annualised rise of 1.5 pct from a 1.7 pct target earlier, and its forecast for capital spending to a fall of 0.4 pct from flat. Nomura Research Institute downgraded its first quarter GDP estimate to a quarter-on-quarter fall of 0.3 pct from a decline of 0.2 pct, and its forecast for capital spending to a fall of 0.8 pct from the rise of 1.1 pct given previously.
Nomura economist Kiichi Murashima, however, pointed to positive developments in the climate surrounding non-manufacturers. "A sustained rise in sales in the retail and the service sector ... underscores the solid business environment surrounding the non-manufacturers as a whole," he said.
"While investment by manufacturers is expected to shortly enter an adjustment phase, there is a good chance that outlays by non-manufacturers, reflecting an improvement in the earnings climate, will see stronger recovery momentum."
The MoF survey showed that revenue of the service sector rose 5.1 pct year-on-year in the first quarter following a 2.2 pct rise in the previous quarter, while revenue in the retail sector increased 4.8 pct after a gain of 6.8 pct.