Japan’s GDP fell 0.7% annualized in January-March

Preliminary statistics on gross domestic product (GDP) from January to March released by the Cabinet Office on May 16 showed that the actual seasonally adjusted value after excluding the impact of price changes fell 0.2% from the previous quarter, equivalent to a decline of 0.7% on an annual basis. This is the second negative growth since January-March 2024. Due to the uncertainty of external demand exacerbated by the US tariff policy and rising prices, personal consumption also lacks strong momentum.

Personal consumption, which accounts for more than half of GDP, only grew by 0.04% from the previous quarter in January-March, almost flat. Among them, the consumption of food such as meat and fish showed negative growth. And boxed instant rice, which performed well before the summer of 2024 due to strong stocking demand, also turned to negative growth. Catering consumption maintained positive growth due to good weather.

Exports fell 0.6%, the first negative growth in four quarters. This was mainly due to the reduction in intellectual property royalties and the base effect after the end of large R&D service orders in the October-December 2024 period. In terms of commodity exports, automobile exports were particularly prominent, which was believed to be driven by panic buying demand before the implementation of US tariff measures.

Imports grew by 2.9%, a sharp increase, which had a negative impact on GDP growth. This growth was mainly due to the increase in advertising expenses such as network services, in addition to positive growth in imports of aircraft and semiconductor-related products.

Equipment investment, the second largest pillar of private demand after personal consumption, increased by 1.4% from the previous quarter. Among them, investment in R&D and software was more significant, and it is expected that investment related to digital transformation (DX) will also be included. Public investment fell by 0.4%, while government consumption remained flat (0.0% growth).

In terms of contribution to the annual growth rate, domestic demand contributed 0.7 percentage points and foreign demand contributed 0.8 percentage points. Among them, domestic demand achieved positive contribution for the first time in two quarters, and foreign demand turned negative for the first time in two quarters.