JAKARTA (TheInsiderStories) – Japan’s real GDP growth for the second quarter of 2018 was revised up to 0.8 percent quarter to quarter (QoQ, or 3.0 percent QoQ annualized), from 0.5 percent on QoQ (or 1.9 percent on Qoq annualized). The solid upward revision reflected stronger private capital investment as suggested by corporate fiscal statements in the second quarter.
Investment in other machinery and equipment rose 2.7 percent (QoQ), following a 1.0 percent drop in the previous quarter. Investment in other buildings and structures (up 2.0% on QoQ), transport equipment (up 6.6 percent on QoQ), and intellectual property products (up 1.1 percent on Qoq) also strengthened from the previous quarter, supported by improved corporate profits.
While revisions to other components were only marginal, domestic demand rose 0.9 percent (QoQ), offsetting a contraction of 0.1 percentQoq in net exports.
Harumi Taguchi, Principal Economist, IHS Markit expects Japan’s real GDP to grow 1.1 percent in 2018, reflecting the stronger-than-expected revision. That said, real GDP growth for the third quarter is likely to slow because of natural disasters (floods and landslides throughout western Japan in July, and the monster typhoon Jebi and the Hokkaido earthquake in August) have disrupted production, supply chains, distribution and tourism, and severely damaged houses and infrastructure.
It is unlikely for Japan’s economy to turn to recession because of those negative incidents, given that improved corporate profits are likely to support solid capex plans in fiscal year 2018 and strengthened wage increases are poised to underpin consumer spending. The government also approved a provisional budget of JPY540 million (US$4.9 million) and is considering a JPY1 trillion-size supplement budget for reconstruction.
That said, persistent uncertainties about global trade tensions have weighed on corporate sentiment and weakened external demand, which will likely hinder Japan’s economic growth in the near term. IHS Markit expects Japan’s real GDP growth to remain modest until front-loaded demand ahead of the next consumption tax increase, scheduled for October in 2019, emerges.
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