Japan: GDP grows at faster rate than previously estimated in the second quarter
According to a comprehensive estimate, GDP increased 1.9% in seasonally-adjusted annualized terms (SAAR) in the second quarter, somewhat above the 1.3% print from the preliminary estimate and contrasting the 4.2% contraction recorded in the first quarter. On an annual basis, GDP grew 7.6% in Q2, marginally above the 7.5% increase in the preliminary estimate and a strong improvement on Q1’s 1.3% decline.
Domestically, Q2’s upturn in SAAR terms was broad-based, although the effects of the state of emergency that ran from the end of April tempered the rebound in activity somewhat. Household spending grew 3.8%, a higher rate than the 3.4% preliminary estimate and contrasting the 4.9% contraction recorded in Q1. Likewise, government consumption swung back to growth, rising 5.4% in Q2 (preliminary estimate: +2.0%; Q1: -6.7% SAAR), while fixed investment increased 5.6% (preliminary estimate: +4.3%), contrasting the 3.5% decline clocked in Q1.
Externally, growth in exports of goods and services accelerated in Q2, rising to 11.8% in SAAR terms from Q1’s 9.8% reading (preliminary estimate: +12.3%). Similarly, growth in imports of goods and services strengthened to 21.4% in the quarter (preliminary estimate: +21.9%; Q1: +16.8% SAAR). As such, the external sector subtracted 1.3 percentage points from overall growth in Q2, which, although unchanged from the preliminary estimate, deteriorated from the 0.9 percentage-point subtraction recorded in Q1.
Looking ahead, the economy is projected to expand at a faster pace in the third and fourth quarters of 2021 as continued growth in capital and consumer spending is bolstered by robust government spending growth. However, the imposition of a fourth state of emergency in July—recently extended to run into late September—and the relatively muted economic lift from the Olympics represent downside risks to the outlook for the second half of the year.
Accordingly, Takashi Miwa, chief Japan economist at Nomura, is bearish regarding the outlook, noting:
“We think growth in the Japanese economy is unlikely to accelerate from here. In Q3, in addition to the semiconductor shortages that had already been a factor, the spread of Covid-19 overseas has led to supply constraints for intermediate goods, and we think real export growth may be slowing. On top of this, of course, the fifth wave of Covid-19 infections in Japan is likely to be weighing down real private consumption. We therefore think economic growth is likely to pause in Q3 2021.”
Contrastingly, Alvin Liew, senior economist at United Overseas Bank, remains more upbeat regarding prospects, commenting:
“The positives for Japan remained the ongoing manufacturing recovery helping to anchor growth amidst the acceleration of the vaccine rollout, even as services remained weak. Attention will be on domestic political developments after the surprise announcement by Prime Minister Suga to step down, […] and the new PM may potentially inject more fiscal stimulus to help the economy tide over the new waves of Covid-19 infections […]. Overall, we still expect Japan to continue its growth trajectory in H2 and we maintain our full-year GDP growth at 2.5% in 2021.”