Japan downgrades fourth-quarter GDP as slowing capex growth hurts domestic demand

TOKYO (Reuters) – Japan’s economy expanded at a slower-than-initially-reported pace in October-December, with firms turning more cautious about spending on plant and equipment as the impact of the coronavirus pandemic weighed on the economic outlook.

FILE PHOTO: Pedestrians wearing protective masks, following the coronavirus disease (COVID-19) outbreak, make their way during commuting hour at a business district in Tokyo, Japan, January 7, 2021. REUTERS/Kim Kyung-Hoon

The slower growth was mainly due to weaker capital expenditure and public spending, which both expanded less than previously thought in the fourth quarter, even as exports remained solid.

Separate data showed household spending was hit by a bigger annual drop in January than in the prior month, a sign the COVID-19 pandemic was keeping consumers cautious about shopping.

The economy grew an annualised 11.7% in October-December, weaker than the preliminary reading of 12.7% annualised growth to mark the second straight quarter of growth, Cabinet Office data showed Tuesday.

The reading, which was weaker than economists’ median forecast for a 12.8% gain, translates into a real quarter-on-quarter expansion of 2.8% from October-December, versus a preliminary 3.0% gain.

Capital spending grew 4.3% from the previous quarter, lower than a preliminary 4.5% rise, but outpacing the median forecast for a 4.1% increase.

Private consumption, which accounts for more than half of gross domestic product, rose 2.2% from the previous three months, matching the preliminary reading.

Net exports – or exports minus imports – added 1.1 percentage point to revised GDP growth, while domestic demand lifted it by 1.8 percentage point, weaker than a preliminary contribution of 2.0 percentage point.

The worse-than-expected GDP revision comes after exports and factory output picked up in January, signalling a stronger recovery in global demand following last year’s deep coronavirus slump.

Household spending, however, fell 6.1% in January compared with the same month a year earlier, official data showed on Tuesday, worse than the 2.1% drop expected by economists in a Reuters poll.

Some analysts are worried that a cold spell in corporate investment and household spending could last longer than expected, boding ill for demand and threatening to leave the world’s third-largest economy without a domestic growth driver.

The Bank of Japan will conduct a review of its policy tools next week to make them more “effective and sustainable” as the pandemic forces it to keep its radical stimulus programme in place longer than originally expected.

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