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Japan increases GDP in the second quarter due to stronger corporate spending

  • Second quarter GDP growth faster than first reported
  • Capex revised
  • Inoculation key to recovery from consumption
  • Sentiment in the service sector hits 7-month low

TOKYO, Sep 8 (Reuters) – Japan’s economy grew faster than originally estimated in the April-June quarter, aided by solid investment, although a COVID-19 resurgence is undermining service sector consumption and clouding prospects.

Revised Cabinet Gross Domestic Product (GDP) data released on Wednesday showed the economy grew by an annualized 1.9% from April to June, which is the economists’ average forecast of 1.6% growth and the original estimate of one Expansion of 1.3% exceeded.

It followed Prime Minister Yoshihide Suga’s announcement last Friday that he was stepping down and paving the way for the September 29 race for ruling parties, in which the contenders will outline their plans to revitalize the world’s third largest economy.

The upward revision was caused by better-than-estimated corporate spending as a brisk global economic recovery boosted capital spending and factory production, which more than offset weak activity in the service sector.

Still, Japan’s economic recovery remains fragile due to the slow COVID-19 vaccinations and pandemic restrictions that are hindering private sector activity.

“Japan’s recovery is lagging behind other advanced economies, so the full recovery of the economy will have to wait at least until early next year,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

However, global chip shortages could affect Japanese auto production and shipping, while signs of economic slowdown in China are cause for concern.

“The 1.9% growth from April to June was not enough to reverse the nearly 4% decline in January-March, less than half of that,” said Yoshiki Shinke, chief economist at the Dai-ichi Life Research Institute. “On average, ‘stalling’ could be the main description of the Japanese economy in the first half of 2021.”

Second quarter GDP growth figures showed a price-adjusted expansion of 0.5% qoq, better than an initial 0.3% growth and the median estimate of 0.4%.

The investment component of GDP grew by 2.3% from January to March in the second quarter, exceeding the median forecast of 2.0% and the preliminary increase of 1.7%.

Private consumption, which accounts for more than half of Japan’s GDP, grew 0.9% in April-June compared to the previous three months, up slightly from a preliminary estimate of 0.8%.

Domestic demand added 0.8 percentage points to the revised growth figures, while net exports – or exports minus imports – detracted 0.3 percentage points below growth in the second quarter.

Separate data on Wednesday showed that the economic watchers survey was a measure of sentiment in the services sector, which fell to a seven-month low in August and the fastest pace since February 2020.

The government downgraded the observers’ overall assessment of the economy, saying “there are weaknesses in recovery due to the impact of COVID-19”.

The data came a day after a weaker-than-expected July household spending spending, suggesting the COVID-19 resurgence may have hampered consumer activity even earlier in the current quarter.

Reporting by Tetshshi Kajimoto and Kantaro Komiya; Editing by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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