— Consumer Spending Unexpectedly Rises Despite Pandemic Restrictions
— Q2 GDP Posts 1st Y/Y Rise in 7 Quarters in Payback for 2020 Slump
By Max Sato
(MaceNews) – 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 Monday showed.
Exports have been picking up on strong demand for passenger cars, chip-making equipment and general machinery amid the reopening of the U.S. and some European economies, but imports are also surging in light of higher energy and commodities prices, leading to a decline in net exports.
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.
Q2 GDP came in firmer than the median economist forecast for +0.2%, or an annualized pace of +0.7%.
GDP Also Picks Up on Year
Japan’s GDP jumped 7.5% from a year earlier in April, posting the first year-on-year gain in seven quarters after falling an upwardly revised 1.3% in Q1. This was not a surprise, given the first wave of coronavirus infections caused a plunge in global demand in April-June of 2020, when Japan’s GDP slumped 10.1% on year and plummeted 7.9% on quarter, or an annualized 28.2%.
In Q2, domestic demand pushed up total domestic output by 0.6 percentage point after pushing down Q1 GDP by a revised 0.7 percentage point.
Net exports (exports minus imports) trimmed 0.3 percentage point off Q2 GDP after lowering Q1 GDP by 0.2 percentage point. It was the second consecutive q/q decline.
Exports of goods and services rose 2.9% on quarter in April-June after rising 2.4% in January-March. Imports surged 5.1% after increasing 4.0% in the previous quarter.
The Bank of Japan’s real export index rose a seasonally adjusted 3.5% on quarter in April-June, the fourth consecutive rise after +1.8% in January-March, thanks to healthy demand for capital goods and information technology products. Automobile shipments have slowed amid global semiconductor shortages.
Consumption, Capex Up After Q1 Slump
Private consumption, which accounts for about 55% of GDP, unexpectedly rebounded 0.8% on quarter in Q2, posting the first q/q rise in two quarters after falling an upwardly revised 1.0% in Q1 but growing at a slower pace than +2.3% in Q4 and +5.1% in Q3 of 2020. It made a positive contribution of 0.5 percentage point to the second-quarter GDP.
Purchases of some goods remain solid as many households have adopted stay-home lifestyles. Expenditures on face-to-face services have been depressed but in Q2 household spending on services rebounded (+1.5% q/q) in reaction to a slump in Q1 (-2.2%).
Business investment rose 1.7% on quarter in Q2, the first q/q rise in two quarters after slipping 1.3% in Q1. It added 0.3 percentage point to Q2 GDP growth.
Private-sector inventories made a negative contribution of a 0.2 percentage point to Q2 GDP, the first q/q drop in two quarters (+0.4 point in Q1).
Public investment slipped 1.5% on quarter in Q2 after recording the first q/q drop in seven quarters in Q1 (-1.0%). It made a slightly negative 0.1-point contribution to overall output in Q1.
Q3 GDP Growth Seen Slow
The economic outlook remains uncertain amid a surge in cases caused by the more infectious Delta variant and amid public frustration over the government’s response to the pandemic, including the slow vaccination rollout.
Economists on average forecast GDP would rise 2.55% at an annualized rate in July-September, revised down from 4.90% projected last month, according to the latest monthly ESP Survey of 36 forecasters by the Japan Center for Economic Research released Thursday.
The fifth wave of the pandemic since April last year forced the government to expand the areas of strict restrictions from Tokyo and Okinawa to three prefectures around the capital as well as Osaka, a western commercial hub, effective until Aug. 31.