BRIDGE FOCUS: Japan GDP may rise, against analysts average view
By Shigeo Kodama, Bridge News
Tokyo--June 7--Views that Japan's real gross domestic product for Jan-Mar
are likely to have shown a gain, not a drop, are spreading among economists here
after the release of data on service industry activities on Friday.
The service industry index, which often moves in tandem with GDP, showed a
sharp 1.6 percent gain on quarter in Jan-Mar, the Ministry of International
Trade and Industry reported Friday. The service sector accounts for about 60
percent of GDP. (See table below)
Economists' forecasts for the Jan-Mar GDP averaged a 0.1 percent drop, or an
annualized 0.5 percent fall, according to a Bridge News survey conducted before
the release of the sevice industry index on June 4. Of the 27 economists
surveyed, 18 forecast the Jan-Mar GDP to fall on quarter, 6 forecast a gain, and
the remaining three forecast no change on quarter.
Also, a majority of market participants at present forecasts Japan's Jan-Mar
GDP in Jan-Mar will decline, posting a fall for the sixth straight quarters, the
longest period of drops ever, noted Hiroyuki Miki, deputy general manager of the
Treasury Group at Sumitomo Bank.
However, the Jan-Mar GDP "may come as a surprise to the markets because it
is expected to show a strong annualized 3 to4 percent gain on quarter," said
Miki.
Atsushi Mizuno, chief strategist at Deutsche Securities, echoed Miki's view,
saying the Jan-Mar service industry index should be viewed as indicating "a
rise," not "
a decline" in Jan-Mar GDP.
Mizuno added many private think tanks would revise their forecasts for
fiscal year 1999-2000 (Apr-Mar) GDP upward, immediately after the release of
Jan-Mar GDP numbers.
In addition to the service industry index, the following data suggest a gain
in Jan-Mar GDP, Sumitomo's Miki said.
--Industrial output, which accounts for around 22 percent of GDP, rose 0.6
percent on quarter in Jan-Mar, after showing a 0.7 percent drop in Oct-Dec 1998.
--All industry index, which combines activities of service, manufacturing
and construction industries as well as the agriculture and public sectors, rose
1.3 percent on quarter in Jan-Mar, after posting a 0.5 percent drop in the
preceding quarter.
Moreover, Apr-Jun GDP, which will be released in September, will show a
rise, following an expected gain in Jan-Mar, Miki said, adding that this would
increase the perception that the economy hit bottom late in 1998 or early 1999.
Thus, the expected supplementary budget for FY99 will be at "a reasonable"
level if it earmarks "real water" spending of about 5 trillion yen.
Real water refers to the portion of a budget which is sure to raise GDP.
Typical examples of real water are public works spending and tax cuts. The
government loans are not seen as real water. Some ruling Liberal Democratic
Party lawmakers are calling for a large extra budget. Former Construction
Minister Shizuka Kamei, for instance, said Friday the extra budget should total
more than 20 trillion yen.
Some economists disagreed to the view more and more people would forecast a
rise in the nation's Jan-Mar GDP.
Yasunari Ueno, chief market economist at Fuji Securities, admits that more
economists may forecast a rise, not a drop, in Jan-Mar GDP in view of the sharp
rise in the service industry index for the same quarter.
But he said, "It is too risky to judge Jan-Mar GDP growth on the basis of
the service industry data alone." The service index rose 0.5 percent in Jly-Sep
1998, but GDP showed a decline of 0.3 percent in the same quarter, Ueno noted.
Following are changes in the index for Japan's service industry activity and
those in real GDP( percent, quarter-on-quarter):
Index for
service industry Real GDP
1997 Jly-Sep up 0.8 up 1.0
Oct-Dec dn 0.6 dn 0.9
1998 Jan-Mar up 0.6 dn 1.2
Apr-Jun dn 1.8 dn 0.7
Jly-Sep up 0.5 dn 0.3
Oct-Dec dn 0.4 dn 0.8
1999 Jan-Mar up 1.6 n.a.
End
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