Japan upgrades Q2 GDP on stronger business spending

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TOKYO — Japan’s economy grew faster than the initially estimated in the April-June quarter, helped by solid capital expenditure, although a resurgence in COVID-19 is undermining service-sector consumption and clouding the outlook.

Revised gross domestic product (GDP) data by the Cabinet Office released on Wednesday showed the economy grew an annualized 1.9% in April-June, beating economists’ median forecast for a 1.6% gain and the initial estimate of a 1.3% expansion.

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It followed Prime Minister Yoshihide Suga’s announcement last Friday that he was stepping down, paving the way for the Sept. 29 ruling party leadership race, in which contenders will outline their plans to revive the world’s third-largest economy.

The upward revision was caused by better-than-initially-estimated business spending, as capital expenditure and factory output were powered by a brisk global economic recovery, more than offsetting weak service-sector activity.

Still, Japan’s economic recovery remains fragile due to slow COVID-19 vaccinations and as pandemic restrictions hamper private-sector activity, some analysts say.

“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,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

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However, global chip shortages may put a drag on Japanese car production and shipments while signs of China’s economic slowdown emerge as sources of concern.

The April-June GDP growth figures translated into quarter-on-quarter expansion of 0.5% in price-adjusted real terms, better than an initial reading of a 0.3% growth and the median estimate for a 0.4% gain.

The capital expenditure component of GDP grew 2.3% in the second quarter from January-March, bigger than the median forecast for 2.0% growth and the preliminary 1.7% gain.

Private consumption, which accounts for more than half of Japan’s GDP, grew 0.9% in April-June from the previous three months, up slightly from a preliminary estimate of a 0.8% gain.

Domestic demand contributed 0.8 percentage points to revised growth figures, while net exports – or exports minus imports – shaved 0.3 percentage point off the second quarter growth. (Reporting by Tetshshi Kajimoto and Kantaro Komiya; Editing by Sam Holmes)