Why Japan's GDP was revised up

Tokyo - Economists likely to temper optimism on outlook given disappointing data on exports and factory output

The Japanese economy grew faster than initially estimated in the fourth quarter as capital investment staged a quick recovery from a series of natural disasters in the previous quarter.
However, despite the upward revision to growth, economists are likely to temper their optimism on the outlook given disappointing data on exports and factory output and with the economy expected to weaken due to the Sino-US trade war.
Japan's GDP rose an annualised 1.9 per cent in October-December, more than the initial estimate of a 1.4 per cent expansion and the median estimate for a 1.8 per cent increase, data from the Cabinet Office showed.
That followed a revised 2.4 per cent annualised contraction in the third quarter, which was the biggest decline in more than four years. Economists warn that capital expenditure and overall economic growth are likely to weaken in the first half of this year as exports dwindle and inventories pile up due to a slowdown in global trade.
"Capital expenditure did very well, but we see an increase in inventories in the fourth quarter that points to weak sales," said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. "Falling exports will hit growth in the first quarter. The first half of this year will be weak, but I don't expect a recession."
The revised figure translates into quarter-on-quarter growth of 0.5 per cent in price-adjusted terms. This is more than a preliminary reading of 0.3 per cent and economists' median estimate of a 0.4 per cent.
The capital expenditure component of GDP rose 2.7 per cent from the previous quarter, marking the fastest expansion since January-March 2015. That was slower than the median forecast for 2.8 percent but faster than the preliminary 2.4 per cent expansion.
The value of inventories rose by ¥157 billion ($1.41 billion) in the fourth quarter, the second consecutive quarter of gains as inventories of raw materials and partially finished goods piled up. Private consumption, which accounts for roughly 60 per cent of GDP, rose 0.4 per cent in the fourth quarter, less than the preliminary 0.6 per cent increase.
Net exports - or exports minus imports - contributed minus 0.3 percentage point, unchanged from preliminary data.
Domestic demand added a revised 0.8 percentage point to GDP, more than a preliminary reading of a 0.6 percentage point contribution.
Separate data on Friday showed household spending rose 2 per cent year-on-year in January, more than the median estimate for a 0.4 per cent annual contraction, which may ease concerns about domestic demand.
Real wages in January rose 1.1 per cent year-on-year in January, matching the same pace of growth in the previous month, the labour ministry said on Friday.
The United States last year imposed tariffs on $250 billion worth of goods imported from China, with Beijing hitting back with duties on $110 billion worth of American products, including soybeans and other commodities.
In a recent sign negotiations to resolve the eight-month trade war were progressing, US President Donald Trump has delayed tariffs on $200 billion worth of Chinese imports.
However, even if the two sides strike a trade agreement, the damage to global trade and Japan's economy may take time to repair with uncertainty about trade policies hurting sentiment and disrupting manufacturers' supply chains.