–Q2 GDP 6.0% Annualized Growth Much Stronger Than 3.3% Median Forecast
–Consumption Loses Steam After Initial Pent-Up Demand on Eased Covid Rules
–Q3 GDP Rise Seen Slowing but Supported by Consumer Spending on Services
–Economic Ministers Goto: Moderate Economic Recovery Expected on High Wage Hikes, Capex Demand
By Max Sato
The preliminary data came in much stronger than the Mace News median economist forecast of 0.9% growth (forecasts ranged from 0.5% to 1.0% gains), or an annualized 3.3% expansion (1.8% to 4.2%).
It followed growth of 0.9% (revised up from 0.7%) on quarter, or an annualized 3.7% (revised from 2.7%) in January-March, on an unexpected surge in private-sector inventories, which topped resilient consumer spending as the largest factor to lead the growth.
Economic and Fiscal Policy Minister Shigeyuki Goto said in a statement that real GDP hit a record high level in April-June, backed by higher automobile production amid improving supply chains and a rebound in external demand due to spending by visitors from overseas. Private consumption posted its first drop in three quarters due to higher prices for food and appliances and despite recovery in spending services, he said.
“The economy is expected to show a moderate recovery,” Goto said, noting the first increase in real compensation of employees in seven quarters amid high wage hikes for this fiscal year as well as solid demand for business investment.
“But we must keep a close watch on the effects of rising prices and downside risks to overseas economic,” he said.
From a year earlier, the economy rose 2.0% in April-June (consensus was 1.3%), posting the ninth consecutive rise following a 2.0% rise (revised from 1.9%) in January-March.
Looking ahead, economic growth in July-September is expected to lose some steam in the face of slowing global demand and domestic labor shortages, but it is still likely to be shored up by solid consumer spending, thanks to widespread wage hikes and an expected sharp increase in summer bonuses.
The real annualized GDP amount rose to a record high ¥560.74 trillion in the April-June quarter from a revised ¥552.57 trillion in January-March. Those figures are above a revised ¥544.21 trillion seen in the January-March period of 2020, when the GDP grew 0.4% on quarter before the outbreak of the pandemic triggered a revised 7.9% slump in the following quarter.
In fiscal 2022 that ended in March, real GDP grew a revised 1.4% to ¥549.20 trillion, which was below the official forecast of a 1.7% rise. It followed a revised 2.7% gain to ¥541.74 trillion in fiscal 2021. The latest figure is still lower than ¥550.09 trillion in the pre-pandemic fiscal 2019.
Spending on Services Solid but Overall Consumption Down
Private consumption, which accounts for about 55% of GDP, fell 0.5% on quarter in the second quarter, coming in weaker than the median projection of a 0.1% increase (forecasts ranged from a 0.4% drop to a 0.3% gains). Elevated costs for daily necessities and durable goods weighed on many households. It is the first drop in three quarters following increases of 0.6% (revised from 0.5%) in the first quarter and 0.2% in the fourth quarter of 2022 and a slight decline (revised down to a 0.03% drop from a 0.1% rise) in the third quarter.
Consumption pushed down the GDP by 0.3 percentage point after making a positive 0.3 contribution to the total domestic output in the previous quarter.
In the second quarter, households trimmed spending on non-durable goods, such as food, beverages and soap, as suppliers continued to raise prices to reflect elevated import and production costs seen earlier. Expenditures on durable goods posted the first drop in four quarters as durable goods prices were also marked up and some households had already purchased cars and electric appliances earlier. The quarterly decline in those two categories more than offset modest gains in spending on semi-durable goods (including clothing, footwear and bags) and services.
In recent months, new vehicle sales have been recovering while spending on eating out and traveling has been robust thanks to widely eased Covid public health rules and the government’s tourism subsidy program.
Domestic demand trimmed the Q2 GDP by 0.3 percentage point, more than the median forecast of a 0.1-point drop (forecasts ranged from a negative 0.3 point to a positive 0.3 point), after boosting Q1 growth by a revised 1.2 points. The decline was due to a fall in private consumption and a pullback in private inventories. The only positive contributions to domestic demand came from a sharp gain in housing investment and a solid rise in public works spending.
Capex Flat in Q2 after a Sharp Rebound in Q1
Business investment in equipment was flat (up a marginal 0.03%) on quarter in April-June, which was much weaker than the median forecast of a 0.6% rise (forecasts ranged from a 0.4% drop % to a 1.7% rise). It followed an unexpected rebound, by 1.8% (revised up from a 1.4% rise), in January-March and a revised 0.7% drop in in October-December. Some firms remain cautious about implementing their plans, although capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
The Bank of Japan’s quarterly Tankan business survey for June released last month showed both large and small firms revised up their combined plans for investment in equipment for fiscal 2023 that began on April 1, with major firms upgrading their plans more than expected and smaller firms less than forecast.
Net Exports Rebound as Imports Continue to Drop
Net exports of goods and services — exports minus imports — made a positive 1.8 percentage point contribution to the total domestic output, coming in much stronger than the median forecast of a 0.8-point rise (forecasts ranged from 0.4- to 1.3-point gains). In the previous quarter, the key measure of external demand pushed down the GDP by 0.3 point after raising it by a revised 0.3 point in the final quarter of 2022.
Japanese exports rebounded 3.2% on quarter in the April-June GDP, despite slow economic recovery in China, after posting their first drop in six quarters in January-March. Imports fell 4.3% for the third consecutive quarterly drop.
The number of visitors from other countries has continued to pick up since the government eased its Covid border control rules in October, leading to higher spending by foreign visitors, which is counted among exports of services, but exports of goods have been slower to recover, except for faster shipments of automobiles thanks to improving supply chains.
Private Inventories Trim GDP Growth, Public Works Spending Solid
Private sector inventories provided a negative 0.2-point contribution to the second quarter GDP, compared to the median forecast of a negative 0.3-point contribution (forecasts ranged from a 0.4-point drop to being flat), after pushing up the first quarter GDP by 0.4 percentage point.
Public works spending marked its fifth straight quarterly increase, up 1.2% on the quarter in April-June, which was largely in line with the median forecast of a 1.1% rise (forecasts ranged from 0.7% to 2.3% gains), backed by the supplementary budget for fiscal 2022 that ended in March. It followed an upwardly revised 1.7% rise in January-March. Public investment raised the second quarter GDP by 0.1 percentage point after a positive 0.1-point contribution to the GDP in the previous quarter.
Price Pressures Up on Year in Q2
The unadjusted deflator jumped 3.4% on the year in April-June after rising 2.0% in January-March due to a 3.2% drop in the import deflator following a 10.2% surge in the previous quarter. The pace of increase in the domestic demand deflator decelerated to 2.3% from 2.8%.
The seasonally adjusted deflator rose 1.4% on quarter after rising at the same pace in the first quarter, with the domestic deflator growing 0.5% in the latest two quarters. The import deflator fell 3.2% in the second quarter after falling 5.2% in the prior quarter.
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Contact this reporter: max@macenews.com
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