Japan’s first-quarter GDP decline likely smaller than initial estimates on firmer capex: Reuters poll

(C) Reuters. FILE PHOTO: Shoppers wearing protective face masks, following an outbreak of the coronavirus disease, are seen at a supermarket in Tokyo, Japan

TOKYO (Reuters) – Japan’s first quarter economic contraction was likely smaller than initially estimated, a Reuters poll showed, thanks to stronger business spending although the country is still expected to slide deeper into recession this year.

Analysts predict the economy is on course for its worst postwar slump in the current quarter as the coronavirus outbreak forced people to stay at home and businesses to close globally.

Japan’s Cabinet Office will release revised GDP data at 8:50 a.m. on June 8, Monday, Japan time (2350 GMT on June 7).

The world’s third-biggest economy was forecast to have shrunk at an annualised 2.1% in January-March, the poll of 16 analysts showed, less than the 3.4% contraction in preliminary estimates.

That would translate into a fall of 0.5% from the previous quarter after the initial reading of a 0.9% decline.

The poll showed capital expenditure likely grew 1.4% for the quarter, revised up from a 0.5% decline in the initial estimate.

“There is no need to change our views that the economy is in an extremely severe situation. A series of economic indicators in April so far have shown rapid deterioration,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“Corporate earnings have also worsened rapidly and uncertainty over the outlook has grown. There is a high chance that firms will refrain from spending.”

Core machinery orders, due on Wednesday, likely tumbled 8.6% in April from the previous month, the biggest fall in five months.

Compared with a year earlier, core orders, a highly volatile data series regarded as a leading indicator of capital spending, likely fell 14.0%.

“We expect manufacturers will delay their spending on rapid falls in foreign demand led by the global economic deterioration,” said Yusuke Shimoda, senior economist Japan Research Institute.

The poll also found Japan’s current account surplus likely shrank to 480 billion yen ($4.40 billion) in April from 1.97 trillion yen in March, as the pandemic hit exports.

The Bank of Japan’s corporate goods prices index (CGPI) likely fell 2.4% from a year earlier in May, the fastest pace of decline since October 2016, worrying signs that the country may return to deflation.

From the previous month, CGPI, which measures the price companies charge each other for their goods and services, was seen down 0.3% in May after a 1.5% fall in April.

($1 = 109.1100 yen)