From the FXWW Chatroom: Q1 GDP: A temporary soft patch
We have lowered our Q1 real GDP growth forecast in light of currently available data. Specifically, we revised to +0.1% q/q (+0.3% saar) from +0.3% (+1.4%). We also see potential for GDP to contract, albeit marginally, for the first time since Q4 15 if private consumption stagnates in March or imports (a deduction item) overshoot.
Q2 GDP onward: Back to a trajectory of above-potential growth
The main factor behind our outlook for slower-than-expected growth in Q1 was the cold snap. Although the composite index of consumption, a basic input in estimating GDP-based private consumption, rose +0.5% m/m in February (January: -0.2%), marking the first gain in three months, we believe it will likely be flat q/q in Q1. In addition, we believe a reactionary downturn in housing investment, stronger-than-expected imports (a deduction item) and a reduction in private inventories also weighed on growth. However, these should be largely one-off factors. Judging from currently available data, we believe the slowdown in Q1 will prove a temporary soft patch and look for growth in excess of potential (+0.5-+0.8% annualized) to resume from Q2.
Twin growth engines alive and well
We expect the current economic recovery driven by domestic and overseas demand (exports and capex) to resume from Q2 and continue through FY18. With employment and income conditions continuing to improve gradually and better weather taking hold, we expect growth in private consumption to pick up again from Q2. We also expect strength in the capex cycle, which supports a self-sustaining recovery, due to a variety factors, including solid corporate earnings, demand to replace/upgrade aging capital stock and accelerated construction investment for the Tokyo Olympics toward a peak in 2018.
View the latest market information in the FXWW Chatroom with a free trial.