Eco Pulse

A difficult Q3, but a more positive outlook

12/22/2023
PDF

The revision of Japanese growth figures was unfavourable, resulting in a greater decline in GDP in Q3 than initially estimated (-0.7% q/q versus -0.5% q/q). The downward adjustment is largely due to greater destocking: the negative contribution was increased from -0.3 percentage points (pp) to -0.5 pp. Other significant revisions came from residential investment (from -0.1% q/q to -0.5% q/q), private consumption (0.0% q/q to -0.2% q/q) and public investment (-0.5% q/q to -0.8% q/q). Low household consumption can be explained by the contraction of real wages for the 19th consecutive month in year-on-year terms (-2.3% y/y in October). Overall, private demand reduced quarterly growth by 0.6 pp in Q3.

However, despite major recruitment difficulties, the outlook for companies remains positive. A rebound in activity is expected from Q4 onwards (we forecast growth of +0.4% q/q). The Tankan business condition index rose by 3 points in Q4 to +13, a level last seen in 2018. This result is better than expected: last quarter’s forecasts had predicted a two-point drop to 8. Another positive development is that sales and profit forecasts for the 2023 financial year (April 2023-March 2024) have been significantly increased. The picture is particularly positive for companies in the non-manufacturing sector, with a business condition index of 18, a figure not seen since 1991, while the manufacturing sector is showing a more mixed picture with an index of 5, but with a stronger increase (+5 points compared to Q3). This difference in momentum between the two sectors is also visible in the December PMI surveys: the manufacturing index fell by 0.6 points to 47.7, while the services index rose by 1.2 points to 52.0. The composite index gained 0.8 points to 50.4.

Leading inflation indicators are falling as the year comes to a close. Consumer price inflation in the Tokyo region slowed from 3.2% y/y in October to 2.6% in November, because of stronger disinflation on food products (from 8.7% y/y in October to 6.9% in November). The annual variation in producer prices fell to 0.3% y/y in November compared to 1% in October. These figures suggest a drop in the national measurement of inflation (3.3% y/y in October).

In our view, the statements made by the members of the Bank of Japan open up the possibility that monetary policy will begin to be normalised at the meeting on 22 and 23 January 2024, which could put an end to the negative interest rate policy. However, the uncertain global economic environment and the still sluggish wage growth in Japan could force the BoJ to be more patient.

Guillaume Derrien with the help of Nassim Khelifi, an intern (article completed on 19/12/2023)

THE ECONOMISTS WHO PARTICIPATED IN THIS ARTICLE

Other articles from the same publication

Global
EcoPulse - December 2023

EcoPulse - December 2023

The economic picture during November and December reveals some divergence between Europe, on the one hand, and the US and Japan, on the other hand. [...]

Read the article
Eurozone
Eurozone: a difficult end to the year

Eurozone: a difficult end to the year

The end of the year is shaping up to be a difficult one for the eurozone, as displayed by the flash PMI indicators for December. The composite index, fell by 0 [...]

Read the article
Germany
Germany: Stagnation set to continue

Germany: Stagnation set to continue

The business climate indicators highlight a still deteriorated situation, raising fears of another quarter of contraction in activity (-0.1% q/q in Q4 according to our forecasts), following four quarters of stagnation or decline (including -0 [...]

Read the article
France
France: Up against the wall

France: Up against the wall

The signs of the French economy cooling down intensified in December, with a further fall in the flash composite PMI to 43.7 (44.6 in November) [...]

Read the article
Italy
Italy: Activity is slowing down, as is inflation

Italy: Activity is slowing down, as is inflation

Economic growth is slowing down in Italy. After contracting by 0.4% q/q in Q2, economic activity only grew by 0.1% q/q in Q3, almost standing still in that quarter. This small rebound was led by consumer spending (+0.6% q/q, contribution of 0 [...]

Read the article
Spain
Spain: Growth falters, but the outlook remains encouraging

Spain: Growth falters, but the outlook remains encouraging

Contrary to the trend observed in the other three major eurozone countries, Spain recorded a more moderate fall in inflation in November. According to the INE, the growth in the Harmonised Index of Consumer Prices (HICP) slowed by 0.2 pp to 3 [...]

Read the article
United States
United States: Towards rate cuts in 2024

United States: Towards rate cuts in 2024

The ISM Report on Business showed an improvement in non-manufacturing activity in the United States in November, with the corresponding index rising to 52.7 (+0.9pp). Conversely, the ISM Manufacturing index was stable (46 [...]

Read the article
United Kingdom
United Kingdom: Growth relapses, the housing market stabilizes

United Kingdom: Growth relapses, the housing market stabilizes

With the more pronounced disinflation of consumer prices and wages, the Bank of England’s decision to keep the bank rates unchanged at its meeting on 14 December was widely expected [...]

Read the article