–Japan GDP Posts 3rd Straight Q/Q Growth as Slight Q2 Drop Revised to Slight Rise
–People Dining Out, Traveling More Since Restrictions Lifted in Late March
–Capex Makes Up for Q1 Drop on Solid Digitization, Greener Energy Demand
–Q3 GDP Growth Faces Headwinds: Domestic Covid Spike, Slower Global Growth
By Max Sato
(MaceNews) – Japan’s gross domestic product for the April-June quarter posted the third straight quarter-on-quarter growth, up a solid 0.5%, or an annualized 2.2% rise, led by pent-up demand for shopping, dining out and traveling in light of eased public health restrictions, while China’s two-month lockdown of Shanghai through the end of May exacerbated supply bottlenecks, Cabinet Office data released Monday showed.
The preliminary data came in softer than the Mace News median economist forecast of 0.7% growth (forecasts ranged from 0.5% to 0.9%), or an annualized 2.9% gain (2.0% to 3.6%).
The expansion followed a slight 0.01% rise (revised up from a 0.1% drop), or an annualized 0.1% gain (revised up from a 0.5% fall), in January-March, when domestic demand showed some resilience despite Covid restrictions, partially offsetting a decline in net exports brought on by surging import costs.
The real GDP amount came to Y542.1 trillion in the April-June quarter, the largest since Y543.8 trillion recorded in the January-March period of 2020, when the economy grew 0.5% on quarter before the outbreak of the pandemic triggered an 8.0% slump in the following quarter.
The economy grew a real 2.3% (revised up from 2.1%) in fiscal 2021 that ended in March, still missing the official economic forecast of 2.6% growth after the upward revision in the latest report. It was the first increase in three years after shrinking 4.5% in fiscal 2020 and 0.9% in fiscal 2019 and edging up 0.3% in fiscal 2018.
From a year earlier, the economy rose 1.1% in April-June, posting the fifth consecutive rise following increases of 0.7% in January-March, 0.5% in October-December, 1.2% in July-September and 7.3% in April-June last year.
Consumer Spending Leads Growth
Private consumption, which accounts for about 55% of GDP, rose 1.1% on quarter in the second quarter, coming in slightly weaker than the median projection of a 1.3% increase and following a 0.3% gain (revised up from a 0.1% rise) in the first quarter and a 2.4% rebound in final quarter of 2021.
It still pushed up the GDP by a hefty 0.6 percentage point after making a positive 0.2-point (revised up from zero) contribution to the total domestic output in the previous quarter.
More people flocked to restaurants and bars, went to music and sports events and made domestic trips after the government ended two months of strict Covid restrictions in late March. An exceptionally early end to the rainy season in late June and a sudden surge in temperatures to record highs for the month also supported demand for summer clothing and other seasonal goods.
Capex Rebounds Strongly
Business investment in equipment rose 1.4% on quarter in April-June, stronger than the median forecast of a 0.9% rebound (forecasts ranged from +0.1% to +1.3%), after slipping 0.3% (revised up from a 0.7% fall) in January-March and posting a modest 0.2% rise (revised up from a 0.1% gain) in October-December. It was the highest growth since the 3.2% jump in the first quarter of 2020.
Capex pushed up the GDP by 0.2 percentage point in the second quarter after providing zero contribution (-0.0 point) to the slight economic growth in the first quarter.
There remains solid demand for upgrading computer software for digitizing and automating operations as well as a move toward reducing emissions amid some signs of easing in supply constraints and elevated producer costs.
External Demand Flat
Net exports of goods and services – exports minus imports – made zero contribution (+0.0 percentage point) to the total domestic output in the second quarter, coming in largely in line with the median forecast of a slight positive 0.1 percentage point contribution (ranging from -0.3 to +0.6 percentage point).
In the previous quarter, the key measure of external demand pushed down the GDP by 0.5 percentage point for the first negative contribution in three quarters.
Exports of goods and services rose 0.9% on quarter in April-June, posting the third straight quarterly gain after rising 0.9% (revised down from a 1.1% rise) in January-March. Imports gained 0.7% after rising 3.5% (revised up from a 3.4% rise) the previous quarter. The pace of imports slowed after the government had bought more Covid-19 vaccines from the US and Europe in the previous quarters.
The Bank of Japan’s real goods export index fell a seasonally adjusted 3.2% on quarter in April-June after rising 2.3% in January-March and slipping 0.1% in October-December. A rebound in capital goods shipments was more than offset by drops in the shipments of auto and auto parts as well as computers, semiconductors and other information technology goods.
Private Inventories Down, Public Works Up
Private sector inventories provided a negative 0.4 percentage point contribution to the April-June GDP versus the median forecast of a negative 0.3-point contribution (forecasts ranged from -0.5 to -0.2 point), after pushing up Q1 GDP by 0.5 point. Companies used built-up inventories to meet shipment needs.
Public works spending marked the first quarter-on-quarter rise in six quarters, up 0.9% versus a 3.2% drop (revised up from a 3.6% fall) in the first quarter, as the government implemented projects included in the supplementary budget for the fiscal 2021 budget. The median forecast for public investment was a larger 2.4% rebound (forecasts ranged from +1.3% to +5.2%).
Public investment made zero contribution to the GDP in the second quarter after trimming 0.2 point off the first-quarter output. Earlier, the government was focused more on purchasing Covid-19 vaccines, which falls into the public consumption category.
GDP Growth Expected in Q3 But Uncertainty Remains
Looking ahead, economic growth in July-September has downside risks as the Omicron BA.5 subvariant has sparked record numbers of new coronavirus infections across the country since late July and investors are bracing for a possible global slump triggered by aggressive tightening by many central banks aimed at bringing high inflation back to target.
On average, 34 economists polled by the Japan Center for Economic Research from July 29 to Aug. 5 forecast the GDP would grow 2.72% at an annualized pace in the July-September quarter based on their average estimates that the economy grew 2.74% in April-June and slumped 0.5% in January-March, according to the center’s ESP Forecast released last week.
In the previous ESP Forecast survey, which was conducted from June 30 to July 7, economists on average had projected the GDP would rise at a faster pace of 3.38% on an annualized basis in July-September.
Since then, the government has urged more prefectures to remind residents to take public health precautions but has no plans to re-impose strict Covid restrictions. The pandemic is once again forcing fast-food chains to temporarily close some shops and shorten business hours. Labor shortages due to employees contracting the coronavirus are also prompting some factories to reduce operations.
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Contact this reporter: max@macenews.com
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