Consumption in Japan

Japan - Consumption

Q2 GDP growth revised downwards on capital expenditure downgrade

The downward revision to the GDP figure for Q2 sparked concerns about the future growth trajectory of the country as the economy is grappling with negative spillovers stemming from the China-U.S. trade war and uncertainty regarding the planned sales tax hike in October. According to revised data released by the Cabinet Office on 9 September, GDP rose 1.3% over the previous quarter in seasonally-adjusted annualized terms (SAAR), a weaker expansion than the 1.8% increase initially estimated (Q1: +2.2% SAAR). In annual terms, GDP expanded 1.2% in Q2, accelerating from Q1’s 1.0% increase.

A weaker-than-expected expansion in private non-residential investment (Q2: +0.8% quarter-on-quarter SAAR; previously reported: +6.1% qoq SAAR) led gross capital fixed investment to moderate sharply compared to the previous estimate. Private and government spending were left mostly unrevised, as were exports and imports of goods and services.

Looking forward, Takashi Miwa, Nomura’s chief Japan economist, added that:

“We think whether the Japanese economy will be able to sustain the current trend of gradual expansion will depend on whether heightened uncertainty regarding overseas economies, stemming primarily from the intensification of the trade conflict between the US and China, will result in further downward pressure on capex by Japanese companies, and whether the consumption tax rate hike planned for October will lead to a collapse in consumer spending.”

BoJ members forecast GDP to grow between 0.6% and 0.9% in FY 2019 and between 0.8% and 1.0% in FY 2020. FocusEconomics Consensus Forecast panelists, meanwhile, see GDP expanding 0.9% in calendar year 2019, which is up 0.1 percentage points from last month’s projection, and 0.5% in 2020.