Japan: GDP soars in Q2 2023 with fastest upturn since Q4 2020
According to a preliminary reading, GDP growth gained momentum to 6.0% in seasonally adjusted annualized rate terms (SAAR) terms in the second quarter, from 3.7% in the first quarter and more than double market expectations. Q2’s reading marked the strongest growth since Q4 2020.
Tourists helped drive growth in the quarter, with exports of goods and services rebounding 13.6% in seasonally adjusted annualized terms, the best reading since Q2 2021 (Q1: -14.4% SAAR). Tourist arrivals recovered to more than 70% of pre-pandemic levels in June, after the government eased border restrictions in April. Adding further impetus to GDP growth, imports of goods and services declined at a steeper rate of 16.2% in Q2 (Q1: -8.7% SAAR). Meanwhile, public spending was stable at a 0.4% expansion in Q2.
Less positively, household spending contracted 2.1% in Q2, marking the worst result since Q1 2022 (Q1: +2.5% SAAR), with the post-pandemic spurt in spending likely losing steam in the face of high inflation. In addition, fixed investment growth slowed to 2.2% in Q2, from 6.8% in the prior quarter.
Meanwhile, on an annual basis, economic growth was stable at 2.0% in Q2, following the previous quarter’s 2.0% expansion.
Looking toward Q3, our panelists expect GDP growth to slow sharply to 0.2% in seasonally adjusted annualized rate terms. The tourism-led surge in exports seen in Q2 is unlikely to be repeated in the quarter, and weak growth in key trading partners such as China will continue to stifle foreign demand.
Analysts at Goldman Sachs said:
“With the breakdown showing lackluster growth in consumption and capex, and the sharp decline in imports providing a significant boost to GDP growth, we think the strong headline print should not be taken at face value. For 2023Q3, we expect consumption, capex, and imports to rebound to some extent from weak growth in Q2. Taken together, we set our initial Q3 GDP tracking estimate at +0.7% qoq annualized.”