Japan: Expecting upward revision to Q3 GDP to 2.6% - Nomura

Research Team at Nomura, is forecasting an upward revision to Japanese real GDP growth of 2.6% q-q annualized which is likely to be supported by the upward revisions for capex, housing & public investment as well as inventory investment.

Key Quotes

“The second set of preliminary GDP estimates for 2016 Q3 (Jul-Sep), to be released on 8 December (Thursday), will reflect the Financial Statements Statistics of Corporations by Industry, released 1 December, as well as various fundamental statistics released since the first set of preliminary GDP estimates were announced on 14 November.”

“We expect that real GDP growth for 2016 Q3 will be revised up to 2.6% q-q annualized at the second preliminary estimate stage (versus 2.2% at the first preliminary estimate stage). We thought that the first preliminary estimates indicated a recovery in the Japanese economy driven by overseas demand, and we retain that view (all figures below on real basis unless noted).”

“We expect capex to show seeds of recovery

According to the Financial Statements Statistics of Corporations by Industry for 2016 Q3 released on 1 December, capex (nominal basis, ex software and financials & insurance, seasonally adjusted) rose 0.4% q-q in Q3, the first rise in four quarters. The manufacturing sector retained a cautious stance (down 2.5%), but there was a 2.1% rise for the nonmanufacturing sector. In view of this, we think GDP-basis capex in the second preliminary estimates will be revised up to around +0.3% q-q. Capex coming in flat in the first preliminary estimates was seen as evidence of lingering weakness. However, as seen in the Financial Statements Statistics of Corporations by Industry, corporate profits are showing improvement and we think upward revisions for capex will be seen as the seeds of a recovery in momentum.” 

“Among other demand-side items, we forecast upward revisions for housing investment, public investment and inventory investment. We expect upward revisions to housing investment and public investment owing to core statistics being reflected that were not available when the first preliminary GDP figures were released. Inventory investment had dented real GDP growth (q-q) by 0.1ppt in the first preliminary estimates, but we expect an upward revision mainly on a revision for inventory of works in progress and raw materials, resulting in the contribution to GDP rising to 0.0%.”

“The only item for which we expect a downward revision is consumer spending. Sales in the accommodation industry slowed through September, and we think the impact of that will come through.”