Business spending fuels GDP growth in Japan

Bloomberg

Tue, Sep 11, 2018 - Page 10

Japan’s economy in the second quarter of this year grew at the fastest pace in more than two years, revised figures show, with a sharp increase in business investment providing additional momentum.

The spurt in capital spending points to continued optimism in the growth outlook, despite simmering global trade tensions.

The threat to global trade from US President Donald Trump’s tariffs on Chinese goods and a possible levy on all car imports are big risks to Japan’s export-focused manufacturers.

The stronger-than-estimated business investment in the three months through June partly comprised spending on labor-saving equipment as companies searched for ways to deal with a shortage of workers amid a shrinking population, economists said.

The pace of economic expansion is expected to slow this quarter as natural disasters take their toll and the burst of capital expenditure eases, they said.

“The GDP growth data show that things are going well up to this point, but Japan’s economy is gradually entering into a period of increasing uncertainty,” Credit Agricole Securities Asia chief Japan economist Kyohei Morita said.

Measured quarter-on-quarter, GDP rose 0.7 percent, as forecast by economists, compared with a preliminary reading of 0.5 percent.

The reading for annualized GDP expansion was revised to 3 percent, versus projections for 2.6 percent and an initial reading of 1.9 percent.

Nominal GDP increased by 0.7 percent, just above estimates of 0.6 percent and comfortably higher than the first reading of 0.4 percent.

An earthquake in Hokkaido last week cut off electricity to 3 million buildings, while a typhoon flooded an airport and battered the industrial region around Osaka.

A scheduled sales-tax hike next year is the biggest cloud on the domestic horizon. The Japanese economy contracted last time the levy went up, in 2014.

Japanese Prime Minister Shinzo Abe, who looks set to win re-election as leader of the ruling Liberal Democratic Party next week, has pledged to go ahead with the tax.

“It’s almost certain that Abe will take every measure and compile a fiscal package to prevent households from taking a big hit,” Morita said.

Business spending was revised to growth of 3.1 percent, the fastest expansion in more than three years. That beat the forecast of 2.8 percent and the initial reading of 1.3 percent.

The contribution to growth from business investment was the largest since the first quarter of 2015.

Private consumption grew 0.7 percent, as projected and equal to the initial reading.

The current account for July showed a ¥2.01 trillion (US$18.1 billion) surplus, versus a forecast of ¥1.89 trillion.