Japan: Economy bounces back in the second quarter
August 13, 2018
Japan’s economy returned to growth in the second quarter after contracting in the first quarter of this year. GDP rose 1.9% in Q2 in seasonally-adjusted annualized terms (SAAR), contrasting Q1’s revised 0.9% contraction (previously reported: -0.6% SAAR) and surpassing market expectations of 1.4% growth. In annual terms, GDP grew 1.0%, matching Q1’s revised figure (previously reported: +1.1%).
The improved performance came on the back of a rebound in private consumption (Q2: +2.8% SAAR; Q1: -0.8% SAAR), supported by a tight labor market. However, temporary factors, such as early summer bonus payments and store sales, likely also played a role. Fixed investment recovered in the second quarter (Q2: +1.9% SAAR; Q1: -0.2% SAAR). This is in line with strong machinery orders readings throughout the quarter and is likely reflective of worker shortages, which are encouraging firms to invest in labor-saving devices. Private non-residential investment increased robustly, while public investment shrank at a slower pace than in Q1. Lastly, government consumption expanded 0.9% SAAR, following a flat reading in Q1.
The external sector softened in the second quarter. Exports grew 0.8% in Q2 (Q1: +3.6% SAAR), while imports rose 3.9% (Q1: +0.7% SAAR), due in part to higher fuel prices. As a result, the external sector subtracted 0.5 percentage points from growth (Q1: +0.3 percentage-point contribution).
The economy is likely to gradually lose steam going forward, as export and private consumption growth ebb. However, investment should provide support, buoyed by healthy business sentiment and preparations for the 2020 Tokyo Olympics. Rising global trade tensions present a key downside risk to Japan’s export-oriented economy.