BANGKOK (AP) — Japan revised its earlier forecast that its economy shrank 2.9% in the first quarter of this year from a year earlier, while a central bank survey released Monday showed conditions remained sluggish.
Analysts are expecting a downward revision to the January-March GDP data, mainly due to changes in construction activity data. Previously, they had expected an annualized contraction of 1.8%.
The Bank of Japan’s quarterly survey showed a modest improvement in business confidence among large and medium-sized manufacturers, but details of the survey point to weakness in domestic and overseas demand.
“Business sentiment remained stable at 12 across all industries and company sizes, consistent with historical trends of quarterly GDP growth of around 0%,” Marcel Thierryand of Capital Economics said in his assessment of the Tankan.
“A new slowdown in GDP growth this quarter would be in line with the decline in industrial production that companies were forecasting in June,” he said.
Economists at ING Economics said a slight improvement in overall manufacturing sentiment was partly due to automakers resuming normal production after a shortage of computer chips slowed factory lines last year.
The highlight of the government’s downward revision of growth figures earlier this year was a 1.9% fall in public investment, which was initially estimated to have grown by 3%. Private housing now falls by 2.9% instead of the earlier forecast decline of 2.5%.
Japan’s economy grew at an annualized rate of 0.1% in the fourth quarter of this year, narrowly avoiding a second consecutive quarterly contraction, or a technical recession, and is projected to grow at an annualized rate of 1.8% through 2023.
The yen’s weakness against the U.S. dollar has benefited exporters who see profits earned overseas balloon in yen terms when they bring them back to Japan, but it has also caused the costs of many of the goods and products that Japan imports, especially oil and gas, to soar.
While the U.S. Federal Reserve is keeping interest rates high to tame inflation that has soared during the pandemic, Japan’s central bank is keeping its benchmark interest rate near zero to keep credit cheap in hopes of stimulating spending and investment.
But rising prices are outpacing the rising earning power of Japanese workers and demand remains relatively weak, weakening growth in an economy that is mainly driven by consumer demand.
The latest data showed household spending fell in the first quarter of this year in real terms, after adjusting for inflation.