Business / Economy

Japan's economy grew for third consecutive quarter, but pace slows to annualized 1.8%

Kyodo

The economy grew for the third consecutive quarter in the April-June period, supported by solid consumer spending and capital expenditure, but its pace slowed from the previous quarter amid sluggish exports, government data showed Friday.

The country’s inflation-adjusted gross domestic product expanded at an annualized rate of 1.8 percent in real terms, following a revised expansion of 2.8 percent in the January-March period, the Cabinet Office said.

The preliminary reading beat the average forecast of 0.7 percent growth made by private-sector economists polled by Kyodo News. On a quarterly basis, the world’s third-largest economy grew 0.4 percent in real terms.

“The result showed Japan’s economy continues to moderately recover, centered on domestic demand,” economic and fiscal policy minister Toshimitsu Motegi told reporters.

But Motegi warned that attention should be paid to global risks, including a slowdown in the Chinese economy and financial market fluctuations, adding the government will “take countermeasures without hesitation” if such risks materialize.

The latest GDP data is widely viewed as one of the most important economic indicators ahead of an increase in the consumption tax rate from 8 percent to 10 percent scheduled for October, a move that could dampen consumer spending and hurt the economy.

Although the economy marked its third consecutive quarterly increase, economists say it is facing challenges, including escalating trade tensions between the United States and China, as well as the yen’s recent rise against major currencies, which erodes Japanese companies’ overseas competitiveness and repatriated profits.

In the three-month period, private consumption, the biggest component of the economy, accounting for roughly 60 percent, rose 0.6 percent from the previous quarter thanks to strong demand for durable goods such as automobiles and air conditioners, a government official said.

The hotel and transportation industries also contributed to the increase as this year saw an extended 10-day Golden Week holiday from late April to early May to mark the imperial succession, according to the official.

Shunsuke Kobayashi, senior economist at the Daiwa Institute of Research, said the increase in consumption was magnified by special factors including the effect of the longer Golden Week.

Capital expenditure, another key pillar of domestic demand, increased 1.5 percent, as domestic companies boosted their spending on automation and other technologies to deal with a serious labor shortage.

Public investment climbed 1.0 percent from the previous quarter thanks to public works partly funded by the government’s supplementary budget for fiscal 2018.

Exports were slightly down, at 0.1 percent, due partly to the economic slowdown in China. In contrast, imports increased 1.6 percent, following a sharp decline of 4.3 percent in the previous quarter. As a result, net exports pushed down GDP by 0.3 percentage point.

In nominal terms, or unadjusted for price changes, the economy grew an annualized 1.7 percent and 0.4 percent on a quarterly basis.

Looking forward, Kobayashi said, “Consumer spending is likely to remain strong in the July-September period due to last-minute purchases ahead of the consumption tax hike,” possibly leading to relatively high growth.

Domestic demand is expected to become weak in the following quarter from October as the tax hike will effectively reduce consumers’ salaries, pressuring spending.

The Cabinet Office is scheduled to release revised April-June GDP data on Sept. 9.