Japan economy grows at 3% in Q2, fastest pace since 2016

The capital expenditure component of Japan's GDP grew 3.1 per cent in April to June from the previous quarter, the fastest increase since the start of 2015.
The capital expenditure component of Japan's GDP grew 3.1 per cent in April to June from the previous quarter, the fastest increase since the start of 2015. PHOTO: REUTERS

TOKYO (REUTERS) - Japan's economy grew in April-June at its fastest pace since 2016 thanks to capital spending rising more quickly than earlier estimated, although global trade tensions and a string of natural disasters pose risks to the outlook.

Revised Cabinet office data showed the economy grew an annualised 3.0 per cent in April-June, handily beating economists' median estimate for 2.6 per cent gain and posting the fastest growth since the start of 2016.

The preliminary reading was for a 1.9 per cent expansion.

The economy's improved performance should be a relief for policymakers worried about fallout from a trade war between the United States and China, which could derail global growth and in turn damage Japan's export-reliant economy.

A recent run of soft data, including exports and factory output, had fuelled doubts in the strength of the economy.

A series of natural disasters such as floods, last week's typhoon and an earthquake severely disrupted business and consumer activity, adding to concerns about growth this quarter.

The updated second-quarter growth showed quarter-on-quarter expansion of 0.7 per cent in real, price-adjusted terms, compared with an initial reading of a 0.5 per cent growth and the median estimate for a 0.7 per cent gain.

The capital expenditure component of GDP grew 3.1 per cent in April-June from the previous quarter, versus the median forecast for 2.8 per cent growth, and the preliminary 1.3 per cent gain. It was the fastest increase since the start of 2015.

Capital expenditure has been a bright spot in Japan's economy, the world's third largest, but companies remain cautious about sharing more of their profits with workers, keeping a lid on private consumption and inflation.

A finance ministry survey last week showed corporate capex rose at the fastest pace in 11 years in the second quarter, driven by procurement of production equipment for cars and semiconductors.

Private consumption, which accounts for roughly 60 per cent of GDP, grew 0.7 per cent in April-June from the previous three months, unchanged from the preliminary estimate.

Domestic demand contributed 0.9 per centage points to revised GDP, while net exports - or exports minus imports - shaved 0.1 per centage point off the second quarter growth.