Japan Q2 growth misses forecasts on weaker spending, investment

Japan Q2 growth misses forecasts on weaker spending, investment TOKYO: Japan's economy grew at a slower-than-expected pace in April-June, government data showed on Monday (Aug 17), as lacklustre household spending and business investment partly offset the impact of strong exports. Gross domestic product rose 1.1 per cent increase in annualised terms, missing a median market estimate of 2.0 per cent growth in a Reuters poll and below an upwardly revised 1.9 per cent expansion in the previous quarter. "Growth was positive, but the details were somewhat weaker than expected," said Kazutaka Maeda, senior economist at Meiji Yasuda Research Institute. "Still, given the disappointing results are likely to have been driven by temporary factors, I don't think the latest data would suggest a weakness ahead or affect the timing of the Bank of Japan's next interest rate hike," which is now widely expected as soon as September, he said. The reading translates into a quarterly rise of 0.3 per cent, compared with the median estimate of a 0.5 per cent increase. Private consumption, which accounts for more than half of economic output, was flat, falling short of a market estimate of a 0.5 per cent increase, reflecting the effects of tuition-free education measures and higher tobacco prices. Consumption and wage trends are key factors the BOJ is watching to gauge economic strength and determine the need for additional rate hikes. Capital spending, a key driver of private demand, fell 1.2 per cent in the second quarter, versus a market forecast for a 0.4 per cent increase. TEMPORARY DRAGS Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, said the weakness in consumption was partly due to one-off factors, including a shift in spending into government consumption through measures such as free school lunches. He also said the decline in capital spending may have reflected disruptions and uncertainty linked to the conflict in the Middle East, but those factors were easing and corporate investment plans remained firm. "Overall, I think we can say that the economy had remained resilient despite slower-than-expected growth," he added. Net external demand, or exports minus imports, added 0.5 percentage point to growth. Exports remained resilient thanks to solid US demand for Japanese hybrid vehicles and sustained global investment in artificial intelligence that supported shipments of semiconductor-related equipment and components. Looking ahead, analysts cautioned that rising import costs and mounting upstream price pressures could eventually feed through to consumers, posing a risk to spending later this year. Private consumption could also see a pullback in the July-September quarter, after policy and regulatory changes temporarily boosted demand for durable goods such as automobiles and air conditioners in April-June. A survey this month by the Japan Center for Economic Research showed 37 economists forecast annualised GDP growth to slow to an average 0.05 per cent in the July-September quarter.