Business / Economy

Japan's economic growth revised downward as capital investment slows

Bloomberg

The economy expanded at a slower pace in the second quarter than initially reported as growth in business investment proved less robust than first thought.

Gross domestic product grew at an annualized pace of 1.3 percent in the three months through June from the previous quarter, according to revised Cabinet Office data, compared with a preliminary reading of 1.8 percent.

Strong consumer spending was the main driver of the expansion. The revised figure, released Monday, matched analysts’ median estimate.

Economists had expected overall growth to be smaller than first estimated after Finance Ministry figures released last week showed manufacturers cutting back on business investment as escalating trade tensions darken the global outlook.

That contrasts with the stance of more domestic-oriented nonmanufacturers, which are continuing to ramp up capital spending as they automate processes to cope with the labor shortage.

Consumer spending has helped power growth this year as exports have fallen due to a slowing global economy and the U.S.-China trade war. Private spending is expected to continue showing strength through the third quarter, before taking a hit from the consumption tax increase Oct. 1.

The U.S.-China trade war is casting a shadow over the global outlook, and by extension the prospects for continued growth in Japan’s trade-dependent economy. Japan is also keen to clinch a trade deal with the U.S. that would avert tariffs on auto imports.

Still, Japan’s economy has continued to expand despite gloomy forecasts from economists expecting the global slowdown to retard growth. While the export sector and manufacturers are showing signs of strain, domestic demand and investment by nonmanufacturers remain solid for now.

The latest growth data came ahead of a Bank of Japan policy meeting next week where some economists are expecting the central bank to take further easing action to ward off any rises in the yen that could hit companies’ profits and invite downward pressure on prices.

The growth figures show the economy is holding up while financial markets and the yen remain relatively stable, said Kazuma Maeda, economist at Barclays Securities. “Even possible action by the European Central Bank and the Federal Reserve seems priced in to markets. Considering all these points I think the BOJ will choose not to waste any policy ammunition at the September meeting.

“Looking ahead, fiscal stimulus and last-minute consumption ahead of the consumption tax increase are likely to support modest growth in the third quarter. But the risks are to the downside. The U.S.-China trade war threatens to dampen exports. Risk-off sentiment could push up the yen — cutting into Japan’s competitiveness and damping inflation.”

Business investment rose 0.2 percent from the previous quarter. Economists had forecast a 0.7 percent rise.

Public investment was revised upward to growth of 1.8 percent from 1.0 percent, another factor that supported the expansion.

Private consumption increased 0.6 percent from the previous quarter in line with a median estimate.

The current account balance for July was a surplus of ¥2.0 trillion, compared with a ¥2.05 trillion surplus estimated by economists.

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