JAPAN: ECONOMY EXPANDS BELOW EXPECTATIONS IN Q4 2022 – UOB

Alvin Liew, Senior Economist at UOB Group, assesses the recent Q4 GDP results in the Japanese economy.

Key Takeaways

“Japan’s 4Q 2022 GDP rebounded as expected, but the pace of increase was below forecast at 0.2% q/q, 0.6% q/q SAAR while the contraction in 3Q was revised worse to -0.3% q/q, -1.0% q/q SAAR.  For the full year, GDP expanded by 1.1% in 2022, easing from 2.1% in 2021.”

“We had expected Japan’s economy to rebound in 4Q but the momentum was weaker than forecast as we underestimated the impact of stronger inflation and the decline in business spending, offsetting the recovering private consumption while the stronger yen and falling commodity prices in 4Q helped trim the country’s previously ballooning import bill. But weaker external demand (as overseas markets slowed down) made the export recovery shallower.”

“Japan GDP Outlook – Our 2023 outlook is largely premised on broad moderation in external economies this year, and we project the US and European economies to enter a (shallow) recession this year amidst aggressive monetary policy tightening stance among these advanced economies. This will directly impact the manufacturing and external-oriented services sectors and will imply softer demand for Japan’s exports. In comparison, services is expected to fare better and help anchor the domestic economic recovery as upside growth factors could be attributed to the continued recovery in leisure and business air travel and inbound tourism, which will benefit many in-person services sectors, and the impact of China’s reopening is likely to be positive for these sectors. With the weaker 2023 manufacturing outlook cushioned by the improving tourism and barring external events (such as escalating war in Europe, worsening US-China relations and a deadlier variant of COVID-19), we keep our modest 2023 GDP growth forecast of 1.0% (from 1.1% in 2022).”