Japan’s economy grew faster than initially estimated in the April-to-June quarter, helped by solid capital expenditure, although a resurgence in COVID-19 is undermining service-sector consumption and clouding the outlook.
Revised GDP data by the Japanese Cabinet Office released yesterday showed that the economy grew an annualized 1.9 percent from April to June, beating economists’ median forecast for a 1.6 percent gain and the initial estimate of a 1.3 percent expansion.
It followed Japanese Prime Minister Yoshihide Suga’s announcement on Friday last week that he was stepping down, paving the way for a Sept. 29 ruling party leadership race, in which contenders are to outline their plans to revive the world’s third-largest economy.
The upward revision was caused by business spending that was better than estimated, 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 virus-related restrictions hamper private-sector activity.
“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,” Norinchukin Research Institute chief economist Takeshi Minami said.
However, global chip shortages might put a drag on Japanese auto production and shipments, while signs of China’s economic slowdown emerge as sources of concern.
“The 1.9 percent April-June growth was not enough to push back the nearly 4 percent dip in January-March — less than a half of it,” Dai-ichi Life Research Institute chief economist Yoshiki Shinke said. “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 a quarter-on-quarter expansion of 0.5 percent in price-adjusted terms, better than an initial reading of a 0.3 percent growth and the median estimate for a 0.4 percent gain.
The capital expenditure component of GDP grew 2.3 percent in the second quarter from January to March, bigger than the median forecast for 2 percent growth and the preliminary 1.7 percent gain.
Private consumption, which accounts for more than half of Japan’s GDP, grew 0.9 percent from April to June compared with the previous three months, up slightly from a preliminary estimate of a 0.8 percent gain.
Domestic demand contributed 0.8 percentage points to revised growth figures, while net exports — or exports minus imports — shaved 0.3 percentage points off the second-quarter growth.
Separate data showed that the economy watchers survey, a gauge of service-sector sentiment, last month fell to a seven-month low and at the fastest pace since February last year.
The government downgraded the watchers’ overall assessment of the economy, saying that “there are weaknesses in the recovery due to the effect of COVID-19.”
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 present quarter.
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