Japan: Q2 GDP revised down marginally in second estimate
September 8, 2020
According to comprehensive estimates, GDP contracted 28.1% in seasonally-adjusted annualized terms (SAAR) in the second quarter, below the 27.8% from the preliminary estimate and far exceeding the 2.3% contraction seen in the first quarter. On an annual basis, GDP fell 9.9% in Q2, below the 7.8% drop from the preliminary estimate and accelerating strongly from the previous quarter's 1.8% fall.
The Q2 SAAR result—which marked the worst reading on record—was driven by a broad-based downturn, with private consumption, public spending, fixed investment and exports all contracting. Private consumption fell 28.2% in the second quarter, which was below the first quarter's 2.8% drop but above the 28.9% preliminary estimate. Public consumption dropped at the sharpest pace since Q2 2016, contracting 2.3% (preliminary estimate: -1.0%; Q1: +0.1% SAAR). Fixed investment worsened markedly, diving 11.0% in Q2, contrasting the 1.9% increase recorded in Q1 and well below the 2.9% fall from the preliminary estimate.
Exports of goods and services plummeted 56.0% in Q2, as predicted in the first estimate, marking the worst result since Q1 2009 (Q1: -19.9% SAAR). Meanwhile, imports of goods and services slid at a milder pace of 1.9% in Q2 (preliminary estimate: -2.1%, Q1: -15.6% SAAR). As such, the external sector detracted 10.9 percentage points from overall growth in Q2, markedly below the 0.9 percentage-point subtraction in Q1 (preliminary estimate: -10.8 pp).
Looking forward, growth is set to return in the third quarter, as an easing of restrictions both domestically and abroad brings a rebound in household consumption and exports. Furthermore, the significant and sustained fiscal and monetary stimulus packages announced during April and May will begin to flow through to the economy, bolstering the recovery somewhat.
However, commenting on the revised results, Takashi Miwa, chief Japan economist at Nomura, sees an uncertain recovery ahead:
“If we take the upward revisions to the estimates for real consumption and private-sector inventory at face value, these results appear to reflect a robust recovery in household demand after the state of emergency was declared over and a resultant aggressive buildup of inventory. But we think the recovery in household demand may have slowed in July and August in response to the renewed increase in COVID-19 case numbers. The sharp reduction in the real capex estimate also casts some doubt on the underlying strength of capex demand, which had held up relatively well thus far despite the pandemic. It seems reasonable to conclude that there is still quite a bit of uncertainty on the pace of the recovery in economic activity from 2020 Q2 (Jul-Sep).”
Author: Stephen Vogado, Economist