GDP contracts in Q1

According to a preliminary reading, GDP contracted 2.0% in seasonally adjusted annualized rate (SAAR) terms in Q1 2024, undershooting market expectations. The contraction was largely due to one-off factors, including an earthquake in Tokyo plus a safety-testing scandal at a Toyota subsidiary. The statistical release also revised down Q4 2023’s result to flat from a 0.4% increase and revised Q3 2023’s contraction up to 3.6% from 3.2%, painting an increasingly glum picture of the country’s recent economic performance. On an annual basis, economic activity declined 0.2% in Q1, contrasting the previous period's 1.2% expansion and marking the largest downturn in three years.

The downturn reflected deteriorations in private consumption, fixed investment and exports. Household spending contracted 2.7% in Q1, marking the steepest decline in two years (Q4 2023: -1.5% SAAR) and the fourth consecutive fall in a row, pointing toward the impact of recently high inflation on purchasing power. Meanwhile, fixed investment worsened, contracting 1.0% in Q1, contrasting the 3.8% expansion in the prior quarter. On the external front, exports of goods and services fell 18.7% on an SAAR basis in the first quarter, contrasting the fourth quarter's 11.6% expansion. More positively for GDP, public spending rebounded, growing 0.8% in Q1 (Q4 2023: -0.6% SAAR). In addition, imports of goods and services deteriorated, contracting 12.8% in Q1 (Q4 2023: +7.3% SAAR), marking the biggest decline since Q2 2023.

ING analysts commented: “We believe that the disruptions of car production and sales due to a safety scandal have distorted the overall growth figures and expect a technical payback in 2Q24. Monthly activity data already shows a gradual normalization since March.” Analysts at Goldman Sachs said: “We set our real GDP tracking estimate for 2024Q2 at +2.9%: The first estimate of 2024Q1 real GDP growth highlighted the weakness of private-sector and external demand. For 2024Q2, we expect consumption to rebound to +3.5% qoq annualized, as durable goods consumption recovers, especially spending on autos. We also see a recovery in capex. We expect exports and imports to turn up to +9.0% and +5.5% respectively, from large declines in Q1. Among export items, we see goods exports rebounding but inbound spending slowing modestly.”

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