Japan's economic growth seen to slow to 1.2% in 3Q

No thanks to sluggish consumption, exports.

According to DBS, the first round estimate of the 3Q GDP will be released this Thursday. DBS expects growth to slow to 1.2% QoQ saar (consensus: 1.6%), significantly down from 3.8% in 2Q and 4.1% in 1Q.

Here's more from DBS:

Slowdown should come from both consumption and exports. With the Nikkei and the yen both moving sideways last quarter, wealth effects on consumption have started to wane and the support of a cheap yen on exports has also decreased.

Retail sales growth fell notably to -0.5% QoQ saar in 3Q from 4.4% in 2Q. Export growth, in real terms, also dropped to -4.4% from 14.9%.

On the other hand, investment should have stayed relatively stable. Private residential and non-residential investment both picked up in 3Q, as seen in the upticks in construction orders, housing starts and machine orders. This may help to offset the slide in public investment spending.

Going forward, GDP growth is expected to rebound temporarily to 3% in 4Q13 and 1Q14. Consumers may bring forward their spending ahead of next April’s consumption tax hike.

Housing investment should also remain strong in the next couple of quarters ahead of the tax increase. A big growth contraction of about 3-4% is expected in 2Q14 when the consumption tax is raised and fiscal policy is tightened.

Barring new surprises from the central bank on monetary policy or effective implementation of structural reforms by the government, growth is likely to revert to the 1% level from 2H14 onwards.