TOKYO: Heavy capital spending in the second quarter drove Japan’s economy to its fastest growth since 2016, underscoring the view that capex continues to back the economy even as trade tensions and a string of natural disasters pose risks to the outlook. Revised Cabinet office data out yesterday showed the economy grew an annualised 3.0 per cent in April-June, handily beating economists’ median estimate for 2.6 per cent gain and the initial estimate of a 1.9 per cent expansion. It was the fastest expansion since first-quarter 2016.
The economy’s improved performance should be a relief for policymakers worried over fallout from a trade war between the United States and China, which could derail global growth and in turn damage Japan’s export-reliant economy.
Capital expenditure has been a bright spot in Japan’s economy, the world’s third largest, although companies remain cautious about sharing more of their profits with workers, keeping a lid on private consumption and inflation.
“The environment surrounding capex is favourable thanks to labour-saving investment because of labour shortages, construction demand related to the 2020 Tokyo Olympics and inbound tourism, and research and development, on top of hefty company profits,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
“The Bank of Japan’s tankan survey has indicated there’s a strong appetite for business investment. As such, capex is likely to remain in an uptrend to underpin the economy ahead.” The updated second-quarter growth showed quarter-on-quarter expansion of 0.7 per cent in real, price-adjusted terms, compared with an initial reading of a 0.5 per cent growth and the median estimate for a 0.7 per cent gain. The capital expenditure component of GDP grew 3.1 per cent in April-June from the previous quarter, versus the median forecast for 2.8 per cent growth, and the preliminary 1.3 per cent gain.
That was the fastest increase since the start of 2015, driven by transport and postal services, and electrical and chemical industries. The upbeat GDP data followed a finance ministry survey that last week showed corporate capex rose at the fastest pace in 11 years in the second quarter, driven by procurement of production equipment for cars and semiconductors.
Still, a recent run of soft data such as exports and factory output, has cast doubt on the robustness of recent growth. A series of disasters including floods, last week’s typhoon and an earthquake, prompted some analysts to forecast a contraction in the current quarter.
“Japan’s exports and factory output are set to slow in July-September as supply and shipments are constrained due to natural disasters and inbound tourism slumps,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities. -Reuters
