Strong trade surplus will support GDP in Q1

Mirabaud expects a positive surprise on Japanese GDP growth this quarter, with net exports likely to contribute positively, by around 0.6 percentage point.

In February, the trade surplus increased markedly as export volumes (+11%) outpaced import volumes (-2%). The acceleration was broad-based, rising 7% to the US, 13% to Europe and 23% to Asia. The Lunar New Year likely had an impact on the number but smoothing the data still indicates a solid quarterly growth rate. By industry, electronic and its related sectors performed strongly. On the industrial sector, we note however the weakness in the latest PMI survey.

While still in expansion, the PMI shows a fall in all major sub-indices. Also negative for future inflation, output prices changed direction and point to lower inflation in the short-term. The Bank of Japan also released a summary of opinions following its policy meeting.

We note the cautious tone on inflation despite rising levels in Europe and the US. Pay rise is low and the domestic output gap suggests that core inflation is unlikely to pick up. With no obstacle to its operations, the Bank of Japan will not change its policy framework this year in our view.

Gero Jung – Chief Economist – Mirabaud AM