Japan upgrades Q2 GDP on stronger business spending

Japan's economic recovery remains fragile due to slow Covid-19 vaccinations. PHOTO: EPA-EFE

TOKYO (REUTERS) - Japan's economy grew faster than the initially estimated in the April-June quarter, helped by solid capital expenditure, although a resurgence in Covid-19 is undermining service-sector consumption and clouding the outlook.

Revised gross domestic product (GDP) data by the Cabinet Office released on Wednesday (Sept 8) showed the economy grew an annualised 1.9 per cent in April-June, beating economists' median forecast for a 1.6 per cent gain and the initial estimate of a 1.3 per cent expansion.

It followed Prime Minister Yoshihide Suga's announcement last Friday that he was stepping down, paving the way for the Sept 29 ruling party leadership race, in which contenders will outline their plans to revive the world's third-largest economy.

The upward revision was caused by better-than-initially-estimated business spending, as a brisk global economic recovery powered capital expenditure and factory output, which more than offset weak service-sector activity.

Still, Japan's economic recovery remains fragile due to slow Covid-19 vaccinations and as pandemic restrictions hamper private-sector activity, some analysts say.

"Japan's recovery is lagging behind other advanced economies. As such, the economy's fully-fledged recovery needs to wait at least until early next year," said Takeshi Minami, chief economist at Norinchukin Research Institute.

However, global chip shortages may put a drag on Japanese car production and shipments while signs of China's economic slowdown emerge as sources of concern.

"The 1.9 per cent April-June growth was not enough to push back the nearly 4 per cent dip in January-March - less than a half of it," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. "On average, 'stalling' could be the main description of Japan's economy during the first half of 2021."

The second-quarter GDP growth figures translated into quarter-on-quarter expansion of 0.5 per cent in price-adjusted real terms, better than an initial reading of a 0.3 per cent growth and the median estimate for a 0.4 per cent gain.

The capital expenditure component of GDP grew 2.3 per cent in the second quarter from January-March, bigger than the median forecast for 2.0 per cent growth and the preliminary 1.7 per cent gain.

Private consumption, which accounts for more than half of Japan's GDP, grew 0.9 per cent in April-June from the previous three months, up slightly from a preliminary estimate of a 0.8 per cent gain.

Domestic demand contributed 0.8 percentage points to revised growth figures, while net exports - or exports minus imports - shaved 0.3 percentage point off the second quarter growth.

The data came a day after a weaker-than-expected July household spending reading, which suggested the Covid-19 resurgence could have started hampering consumer activities even earlier in the current quarter.

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