5 December 2001, 10:46 OUTLOOK - Japan Q3 GDP may fall up to 1.0 pct vs Q2 (UPDATE)
---- by Yasuhiko Seki ----
TOKYO (AFX-ASIA) - Japan's real GDP for the third quarter to
September may contract by up to 1.0 pct quarter-on-quarter on the
collapse in demand for IT products and the fall-out from the Sept 11
attacks on the US, economists said.
Surprisingly strong capital investment shown in the Ministry of
Finance survey released this morning led to a few minor last-minute
upgrades by economists for the third quarter GDP, which is due for
release Friday.
The ministry said capex rose 0.5 pct compared with private-sector
forecasts of a decline of between 1.3 and 3.0 pct.
However, economists still expect a further contraction of GDP
growth for the third quarter, following the 0.7 pct decline in the
second.
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, they said.
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
raised his forecast slightly to negative 0.5 pct after the MoF survey,
from a fall of 0.8 pct previously.
He said the deterioration in spending has been made worse by the
BSE breakou t 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.
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.
BNP Paribas chief economist Ryutaro Kono sees some signs of
improvement in the corporate sector.
Kono upgraded his forecast after the MoF data to a negative 0.4
pct, from the previous estimate of a 0.9 pct fall in third quarter GDP,
led by a 4.8 pct decline in capital spending.
"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."
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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