JAKARTA - Japan’s real GDP in Q2 rose by 0.2% quarter-on-quarter (q/q) annualized, following growth of 2.0% quarter-on-quareter. IHS Global Insight provides updates and commentary on Japan’s GDP. Following is the highlights:
Key Points:
- Japan’s real GDP in Q2 rose by 0.2% quarter-on-quarter (q/q) annualized, following growth of 2.0% q/q (revised up from 1.9% q/q) in the previous quarter. The marginal growth reflect solid strengthening for residential investment (5.0% q/q) and a continued increase for public investment (2.3% q/q), which offset declines for capex and net exports. Residential construction showed a solid rebound following two consecutive quarters of decline.
- Public investment continued to rise can be attributed to the ongoing recovery work after the Kumamoto Earthquake and other infrastructure projects supported by the supplementary budgets approved in January.
- Consumer spending, however, softened to 0.2% q/q following a 0.7% rise in the first quarter. The weakness partially reflected the drop-out of leap-year effects.
- Net exports contributed 0.3 percentage point contraction to q/q real GDP growth, for the first negative contribution since Q2 2015.
- Capex continued to fall, slipping by 0.6% following a 1.3% decline in the previous quarter.
- Changes in private inventory continued to decline for a fourth consecutive quarter, reflecting destocking and orders filled from inventories during factory shutdowns caused by the Kumamoto Earthquake.
Outlook:
Second-quarter results were in line with our IHS Markit forecasts, and we maintain the view that modest growth for Japan’s real GDP will continue, underpinned by recovery work associated with the Kumamoto Earthquake and the government’s stimulus plans in the second half of 2016 through to 2017. That said, weak external and domestic demand continues to be a concern. While non-residential building starts in the second quarter and the outlook for machinery orders in the third quarter suggests a recovery in capex, companies seem to remain cautious about increased spending.
Yen strengthening and weak external outlooks remain downside factors for capital expenditures and tourism. These could also weigh on wage increases and consumer sentiment and, in turn, consumer spending, despite a tight labor market and increased purchasing power because of weak import prices. Residential investment could soften because of the postponement of the consumption tax increase and higher construction costs due to labor shortages in the construction sector. (*)
By Harumi Taguchi, Principal Economist, IHS Global Insight