Japan cuts Q3 growth estimate as business spending drops

Bloomberg

Japan unexpectedly cut its reading of third-quarter economic growth to an annualized 1.3 percent, from a preliminary estimate of 2.2 percent expansion. The revision was driven by drops in business spending and in private inventories.
Meanwhile, the government’s projection for the overall size of the economy rose, thanks to changes in the way gross domestic product is calculated.
The median estimate of economists in a Bloomberg survey was for an annualized 2.3 percent expansion. Measured quarter on quarter, GDP rose 0.3 percent in the three months through September (preliminary figure was +0.5%; economists’ forecast +0.5%). Business spending fell 0.4 percent (preliminary figure 0%; economists’ forecast +0.2%). The value of nominal GDP in FY2015 was revised to 532.2 trillion yen (from 500.6 trillion yen), using the new calculation.
The new methodology will bring Prime Minister Shinzo Abe a bit closer to his goal of expanding GDP to 600 trillion yen, but it won’t fix the problems in Japan’s economy, which has swung between modest growth and contraction in recent quarters. Domestic consumption and wage growth remain tepid. Exports, though, are showing signs of a recovery, and these companies should receive a boost from the yen’s decline following President-elect Donald Trump’s win last month. “GDP growth wasn’t quite as strong last quarter as initially reported, but this was more than offset by upward revisions to previous quarters,” Marcel Thieliant, senior Japan economist at Capital Economics said after the data. “Spare capacity is narrowing and we still expect the Bank of Japan to remain on hold for the foreseeable future.”
“Corporate confidence and animal spirits have weakened, making businesses cautious about spending,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Center in Tokyo. “Even with the yen weakening recently, there are still political uncertainties in the US and Europe, deterring companies from making investments. And Japan’s potential growth remains low.”
“The GDP revisions and the new methods don’t change the basic profile of Japan’s economy. Basically, Japan’s economy is in a gradual recovery since Abenomics kicked in,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. The economy will likely continue to recover moderately toward the next year due to a rebound in exports and production, and the government’s economic stimulus measures may provide underlying support, said Kodama. “However, the recovery may lack strength as Weak wage growth limits a recovery in consumer spending and companies remain cautious about increasing spending.”