Japan upgrades Q2 GDP on strong business spending

Japan | Wed, September 8, 2021

Japan’s economy grew faster than the initially estimated in the April-June quarter, helped by solid capital expenditure, although a resurgence in COVID-19 is undermining service sector consumption and clouding the outlook.

The economy increased an annualized 1.9 percent in April-June, according to revised GDP statistics issued by the Cabinet Office on Wednesday, surpassing experts’ consensus projection of 1.6 percent growth and the earlier estimate of 1.3 percent growth.

It came after Prime Minister Yoshihide Suga announced his resignation last Friday, opening the door for the September election. 29 ruling party leadership race, in which contenders will outline their plans to revive the world’s third-largest economy

Better-than-expected corporate spending drove the higher adjustment, as a strong global economic rebound boosted capital investment and manufacturing production, more than offsetting sluggish service sector growth. Despite this, Japan’s economic recovery is hampered by delayed COVID-19 vaccines and pandemic regulations that stifle private sector activities.

“The recovery of Japan is trailing behind that of other major economies. As a result, the economy’s full recovery would have to wait until at least early next year “Norinchukin Research Institute’s head economist, Takeshi Minami, stated. However, global chip shortages may put a drag on Japanese car production and shipments while signs of China’s economic slowdown emerge as sources of concern.

“The 1.9 percent rise in April-June was insufficient to offset the almost 4% drop in January-March – less than half of it,” Yoshiki Shinke, chief economist of Dai-ichi Life Research Institute, said. “During the first half of 2021, the dominant descriptor of Japan’s economy might be’stalling.'”

In price-adjusted terms, the second quarter (Q2) GDP growth numbers translated into a 0.5 percent increase quarter-over-quarter, stronger than the original reading of 0.3 percent growth and the consensus forecast of 0.4 percent gain. From January to March, the capital expenditure component of GDP increased by 2.3 percent, above the median expectation of 2.0 percent and the earlier 1.7 percent increase.

Private consumption, which accounts for more than half of Japan’s GDP, increased by 0.9 percent in April-June compared to the previous three months, slightly higher than the earlier estimate of 0.8 percent.

Domestic demand contributed 0.8 percentage points to revised growth figures, while net exports – or exports minus imports – shaved 0.3 percentage point off the second quarter growth.

Separate statistics released on Wednesday indicated that the economic watchers survey, which measures service-sector confidence, fell to a seven-month low in August and increased at the quickest rate since February 2020. “There are flaws in the recovery owing to the influence of COVID-19,” the government said, downgrading the observers’ overall evaluation of the economy.

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