Japan’s GDP for Q4 2020 has been revised lower, mainly due to a contraction in companies’ spending plans and steep decline in inventories as the coronavirus pandemic hit demand severely. Against the prelim reading of 12.7%, the latest estimates by the government reveal that the world’s third largest economy grew by 11.7% YoY between October and December 2020.

Japanese companies had cut down their inventories and capital expenditure plans by a greater extent than previous estimates, causing the downgrade in Q4 2020’s GDP figures. On a positive note, however, exports out of Japan during the period stayed strong, offering some hope for the trade-reliant economy of recovery from the pandemic-driven downturn.

Latest data reveals that capital spending between October and December last year rose by only 4.3% QoQ vs. prelim estimates for a 4.5% increase instead, but slightly better than economists’ expectations for a 4.1% rise. Meanwhile, private inventories – which includes raw materials and manufactured products, took away 0.6% points from the GDP, as opposed to the prelim reading of -0.4%.

Private consumption came in line with expectations, increasing by 2.2% during the period. While net exports contributed 1.1% points to the GDP, the contribution from domestic demand came in at 1.8% – lower than the estimate for a 2% reading instead.

The second wave of the pandemic earlier this year brought down household spending during January across Japan, turning the mood cautious among consumers once again. According to data released by the government, household spending contracted by 6.1% YoY during January, a sharper decline than the forecast for a 2.1% reduction instead.