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News Release

Forecast of GDP Statistics for the October-December Quarter of 2004

1. October-December Figures Set to Record Slight Positive Growth

The GDP statistics for the October-December quarter of 2004 are likely to show positive real economic growth of 0.2% on the previous quarter (annualized rate +0.9%). This is because, although net exports have made a negative contribution to growth for two quarters in succession, consumer spending and capital investment continue to grow at a gentle pace and the decline in public investment has slowed.

Movements of the Major Elements of Demand

(1) Consumer Spending

The figures are likely to show that consumer spending continues to grow at a gentle pace. Sales of winter goods have suffered from the mild weather and with incomes slow to recover, consumption expenditure, as recorded in the Family Income and Expenditure Survey, and other indicators have begun to weaken overall. However, spending on durables goods such as digital consumer electronics and automobiles has bolstered the total level of spending. Domestic shipments of LC TV sets and DVD recorders in the October-December quarter have both soared, and are up more than 80% on the same quarter in 2003. Moreover, the growth of housing investment for four consecutive quarters has boosted the growth of imputed rent.

(2) Housing Investment

The figures are likely to show a rise in housing investment for a fourth consecutive quarter. This is due to progress in the construction of own homes and housing for sale, following the rise in construction starts through the summer.

(3) Capital Investment

The figures are likely to show that capital investment continues to rise at a gentle pace. Industrial production having entered an adjustment phase, investment is slowing in the manufacturing sector but appears to be holding firm in the non-manufacturing sector. Moreover, as the tendency until now has been to underestimate capital investment at the primary QE (the cause probably lies in the estimates of construction investment), there is likely to be a slight upward adjustment at the secondary QE as incorporated in the Financial Statements Statistics of Corporations by Industry.

(4) Government Expenditure

Owing to the growth of medical care and nursing costs, government consumption continues to rise at a gentle pace. The figures are likely to show that the decline in public investment has slowed owing to the upturn in spending by municipal governments in particular on reconstruction projects in the wake of natural disasters.

(5) Exports

The figures are likely to show that exports have grown for a twelfth consecutive quarter and that there has been a slight increase in the pace of growth as compared with the July-September quarter. Owing to slower growth of shipments to Asia, among other factors, exports have begun to fall quarter-on-quarter on a volume basis, but, owing to progress in changing over to exports with greater added value, have seen a slight recovery on a real basis.

(6) Imports

As imports of manufactured goods, especially from Asia, have held firm, the figures are likely to show 2-digit growth on an annual basis. However, on a monthly basis, import growth is likely to slow, in conjunction with the slowdown in the domestic economy.

(7) Deflators

With the downward trend of the government consumption deflator slowing as civil servant salaries bottom out, the figures are likely to show that that the deflators are falling at a slower pace. However, the consumer spending deflator is still falling and the rise in the prices of crude oil and primary products continues to exert downward pressure on the deflators and nominal GDP.

2. Adjustment Phase Likely to Continue for Some Time

Looking ahead to the January-March quarter of 2005, as production adjustments in the manufacturing sector and the slowdown in exports are expected to continue, it is likely that the economic adjustment phase will continue. However, given that the downward pressure on the economy exerted by public investment is likely to disappear for a while, private-sector investment in construction is holding steady, among other factors, the economy should avoid slipping into negative growth.

Looking further ahead to the early part of fiscal 2005, as overseas economies are holding relatively steady in spite of slower growth and the domestic corporate sector is growing stronger, there is little risk that the economy will lose momentum and, by about mid-2005 when production adjustments are likely to be completed, it is likely that the economic trend will turn upwards once more.

For more information on the content of this report, please contact
Hideki Matsumura
Economics Department

Tel: 03-3288-4245

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