By Max Sato
— Govt Warns of Risk Posed by Southeast Asian Lockdowns on Supply Chains
(MaceNews) – Japan’s government Thursday repeated that the economy is still headed for recovery after the Q2 GDP data showed unexpectedly resilient consumer spending and a rebound in business investment, but warned about the downside risk posed by a global spike in coronavirus cases, according to its monthly report released by the Cabinet Office.
The government said “signs of a pickup remain in place, although weakness is growing in some areas,” a statement adopted in May, when it downgraded its overview for the first time in three months.
Exports have been increasing on higher global demand, supporting domestic production of electronic parts and devices as well as machinery used for investment in equipment.
At the same time, the government warned about the drag from pandemic-caused lockdowns in Southeast Asia on global supply chain networks, noting that some Japanese automakers have been forced to suspend production from late August until late September.
As for overseas economies, the government upgraded its overview for the first time in four months, saying they are “picking up, although severe conditions remain in some regions” due to the pandemic. Previously, it had said those economies were “picking up amid severe conditions.”
It revised up its views on the U.S. (the first upgrade in four months) and Britain (the first in three) but downgraded its assessments on Indonesia and Thailand, both for the first time in 15 months.
On the near-term outlook, the government repeated its recent statement on Japan, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies.”
But it also warned about “higher downside risks” posed by the spread of the pandemic.
Key points from the monthly report:
The government upgraded its assessment of corporate profits for the first time in six months, saying they are “picking up, although some weaknesses remain among non-manufacturers” due to the impact of COVID-19. It slightly changed its previous statement that profits were “picking up as a whole while weakness is seen among non-manufacturers.”
Official data showed current profits at listed firms in both the manufacturing and non-manufacturing sectors surged from a year earlier in the April-June quarter, but the government cautioned that many companies have been unable to pass higher raw material costs on to customers, which could hurt their profit margins.
The government repeated that private consumption, which accounts for about 55% of the gross domestic product, “has been in a weak tone, particularly in the service sector,” after downgrading its view for the first time in three months in May.
Japan’s economy rebounded more strongly than expected in April-June, led by solid business investment and surprisingly resilient consumption despite on-and-off restrictions on economic activity during the pandemic, Cabinet Office data released last week showed.
Real GDP rose 0.3% on quarter, or an annualized 1.3%, in the second quarter of 2021, following an upwardly revised 0.9% decline (annualized -3.7%) in January-March, which was the first contraction in three quarters.
In the second quarter, consumer spending on goods was solid while expenditures on services were below the pre-pandemic level, although they picked up from the previous three months.
Consumption during the four-day weekend ending July 25 moved up to the level seen in recent years but has fizzled out this month, showing limited activity during the mid-August o-bon holiday season in the face of a spike in coronavirus cases driven by the Delta variant.
The government said consumer prices have turned firmer when one-off factors, such as sharply lower mobile communication fees introduced in April, are excluded.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
- Private consumption “has been in a weak tone, particularly in the service sector” (basically unchanged, left out the word “recently”; downgraded in May 2021; upgraded in October 2020).
- Business investment is “picking up” (unchanged; upgraded in April 2021; downgraded in November 2020).
- Housing construction is “firm” (unchanged: upgraded in June 2021; downgraded in September 2019).
- Exports are showing a “continued increase at a slow pace” (unchanged; upgraded in December 2020; downgraded in March 2021).
- Industrial production is “picking up” (unchanged; upgraded in November 2020; downgraded in April 2020).
- Corporate profits are “picking up, although some weaknesses remain among non-manufacturers” due to the impact of COVID-19 vs. “picking up as a whole while weakness is seen among non-manufacturers” due to the impact of COVID-19 (upgraded for the first time in six months; last upgraded in February 2021; downgraded in April 2020).
- Business sentiment is “showing movements of picking up, although some severe aspects remain” (unchanged; upgraded in July 2021; downgraded in May 2021).
- Employment conditions are improving with some soft spots (unchanged; upgraded in September 2020; downgraded in May 2020).
- Consumer prices are “firm” vs. “flat” (changed for the first time in 17 months; downgraded in March 2020).
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