3 December 2001, 09:00 OUTLOOK - Japan Q3 GDP down 0.2-1.0 pct vs Q2 on IT slump, Sept 11
---- by Yasuhiko Seki ----
TOKYO (AFX-ASIA) - Japan's real GDP for the third quarter to
September will show a contraction of up to 1.0 pct over the second on
the collapse in demand for IT products and the fall-out from the Sept
11 attacks on the US, economists said.
Economists forecast a third quarter GDP contraction of between 0.2
pct and 1.0 pct over the previous quarter. In the three months to June,
GDP fell 0.7 pct quarter-on-quarter or an annualised 2.9 pct.
Consumer spending has fallen due to a deterioration in the labour
market, the attacks on the US and the local outbreak of BSE or 'mad
cow' disease.
Taisei Fire and Marine Insurance Co became the first major local
company to face bankruptcy due to the direct impact of the attacks on
the US, while JAL and JAS have announced plans to consolidate
operations to weather the downturn.
Peter Morgan, senior economist at HSBC, said he expects a third
quarter GDP contraction of around 1.0 pct, the largest quarterly fall
in two years.
"The downturn of consumer spending amid sluggish economic activity
and the jump in the unemployment rate should have stood as a leading
driver of the steep GDP fall," he said.
HSBC's own consumer spending index showed a year-on-year fall of
1.4 pct in the third quarter, the largest drop since the first quarter
of 1998, more than offsetting the gains made in the previous two
quarters.
Consumer spending rose 0.5 pct quarter-on-quarter in April-June.
Tsubasa Research Institute senior economist Yasuaki Kudamatsu said
the deterioration in spending has been made worse by the BSE breakout
and the Sept 11 attacks.
"While sluggish corporate performance is spilling over to the
household sector through such routes as the deterioration of the labour
market, consumer sentiment further worsened because of the BSE problem
and the terrorist attacks on the US," he said.
Unemployment reached a record high of 5.4 pct in October.
Tsubasa Research expects third quarter GDP to fall 0.8 pct, led by
a 0.5 pct decline in consumer spending.
Economists also noted sustained weak corporate activity due to
downward pressure on earnings, prompting many firms to increase
restructuring.
"Cut-backs in investment by semiconductor chip-processing firms and
machine-tool makers will continue to lead the decline in overall
capital spending items," Japan Research Institute economist Makoto
Ishikawa said.
"On the other hand, sustained solid investment in IT by
non-manufacturers and temporary rises in investment related to urban
redevelopment projects in Tokyo helped curtail the rate of fall."
Japan Research Institute forecasts a 0.4 pct fall in third quarter
GDP, with capital spending expected to be down 1.4 pct. Capex declined
2.4 pct in the second quarter.
For his part, BNP Paribas chief economist Ryutaro Kono sees some
signs of improvement in the corporate sector.
"Inventories of IT products, the 'ground zero' of the present IT
slump, have been falling steadily since the summer and de-stocking here
may see some end in the first quarter," he said.
"On the investment front, the telecom sector maintains a positive
stance and some retailers that have new business models are rushing to
open new stores in Tokyo to take advantage of lower property prices."
However, BNP forecasts a 0.9 pct fall in third quarter GDP, led by
a 4.8 pct decline in capital spending.
Economists said net exports will continue to contribute negatively
to GDP, reflecting the sharp setback in the US economy that has also
hit activity in the rest of Asia.
"Exports, which began their downward trend in the second half of
2000 due to the decrease in US-bound exports, are now seeing a
broad-based fall ... including Europe-bound and Asia-bound exports,"
NLI Research Institute economist Taro Saito said.
NLI Research forecasts a 0.4 pct fall in third quarter GDP, with
net exports contributing a negative 0.3 percentage points.
"However, as imports are beginning to show a more rapid fall due to
sluggish domestic demand recently, net exports may emerge as a positive
contributor in the fourth quarter," Saito said.
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