Japan: Economy bounces back stronger than expected in Q2
GDP reading: The economy rebounded in Q2, expanding 3.1% in seasonally adjusted annualized rate quarter-on-quarter terms (SAAR) in Q2, improving from the 2.3% contraction logged in Q1, comfortably beating market expectations and marking the best result since Q1 2023.
On an annual basis, economic activity declined at a softer rate of 0.8% in Q2, compared to the previous period’s 0.9% contraction.
Drivers: The quarter-on-quarter upturn was driven by private consumption, which increased 4.0% in the second quarter, compared to the first quarter’s 2.2% contraction. The rise was the first in five quarters, and was likely boosted by a recent tax rebate and the largest wage hikes in over 30 years. In addition, fixed investment rebounded, growing 6.9% in Q2, contrasting the 3.5% contraction recorded in the previous quarter. Less positively, public spending growth waned to 0.3% in Q2 (Q1: +1.1% SAAR).
On the external front, exports of goods and services bounced back, growing 5.9% in Q2 (Q1: -17.2% SAAR). That said, imports of goods and services also rebounded, growing 7.1% in Q2 (Q1: -9.6% SAAR).
GDP outlook: Our panelists expect seasonally adjusted annualized quarter-on-quarter GDP growth to gradually lose steam in the second half of 2024; private spending will expand at a softer clip as persistent inflation will hit household purchasing power. Similarly, fixed investment and exports growth is also expected to decelerate, further dampening momentum.
Panelist insight: EIU analysts commented:
“The data for April-June were slightly stronger than our forecast, largely because of the surprisingly strong private consumption. We will retain our annual real GDP growth forecast of 0.5% for 2024, however, as we expect domestic demand growth to moderate in the second half of the year, owing in part to sticky inflationary pressures.”