Japan: Q1 GDP figures surprised to the upside – UOB

Senior Economist at UOB Group Alvin Liew reviews the latest Q1 GDP readings in the Japanese economy.

Key Takeaways

“Japan’s 1Q 2023 GDP extended its increase at a stronger than expected pace of 0.4% q/q, 1.6% q/q SAAR while the 0.1% q/q SAAR expansion in 4Q 2022 was revised to -0.1% q/q contraction. With 3Q’s contraction unchanged at -1.0% q/q SAAR, this implied that Japan suffered a brief technical recession (3Q-4Q 2022) and has emerged from it in first quarter of this year.”

“Japan’s growth momentum in 1Q was stronger than forecast as we underestimated the impact of re-opening on private consumption and the surprise jump in business spending, while the fall in commodity prices helped further trim the country’s ballooning import bill. But weaker external demand (as overseas markets continued to slow down) continued to delay the export recovery, exerting a drag on overall growth.”

“Trade Outlook - For the next few months, the expectation is that the global economy will slow further in 2H which in turn means weaker external demand. And given the daunting high base comparison in the rest of 2023, we expect Japan’s exports to contract (y/y) in the next few months of 2023 (after Apr).  And while we expect softer demand for Japan’s exports, we also see import declining (y/y) during these months, reducing the trade deficit. We expect Japan’s trade deficit to hit come in just below JPY 7 trillion in 2023. Year-to date, the trade deficit amounted to JPY 5.6 trillion in Apr.”

“Japan GDP Outlook – Weak manufacturing and exports likely to weigh on growth in 2023, while services to provide the much-needed mitigation. That said, the downside risk to services will be the extent of global slowdown in growth. With the weaker 2023 manufacturing outlook, financial market uncertainty and the recession risks in the developed markets of US and Europe on the back of tighter monetary policies while partly cushioned by the improving tourism and barring external events (such as escalating war in Europe, worsening US-China relations and a deadlier variant of COVID-19), we keep our modest 2023 GDP growth forecast of 1.0% (same pace as 2022).”