Intelliasia East Asia News – Japan’s April-June growth rose to 3.5% real annualized

Japan’s economy grew at a real annualized rate of 3.5% in the April-June quarter, much faster than previously reported, as businesses and consumers increased spending amid the waning impact of the COVID-19 pandemic, the Cabinet Office announced on Thursday.

Real gross domestic product, adjusted for inflation, was previously estimated to have increased by 2.2%. On a quarterly basis, it rose 0.9%, revised up from an earlier reading of 0.5%. GDP is the total value of goods and services produced in a country.

The figure, above the average market forecast of a 2.9% increase, confirmed the third consecutive quarter of growth and the return of the world’s third-largest economy to pre-pandemic size.

Economic activity picked up between April and June, helped by the removal of anti-virus curbs that had weighed on demand, but economists remain cautious about growth prospects, in part because inflation is accelerating.

Capital spending rose 2.0%, more than the 1.4% originally announced, as a drop in COVID-19 cases helped reduce uncertainty, prompting companies to step up investment in factories, equipment and software.

Private consumption, which accounts for more than half of the economy, rose 1.2%, compared to 1.1% in the preliminary data.

The higher growth is the result of higher spending on restaurants, hotels and transportation costs, a sign of a gradual return to normal. A sharp increase in clothing spending was a key driver of the upward revision, a government official said.

“The recovery from the fallout caused by Omicron has been much stronger than initially thought. But that hasn’t changed our view of the state of the economy. It only means that the economy has regained its size before the pandemic,” said Shinichiro Kobayashi, senior economist at Mitsubishi UFJ Research and Consulting.

Kobayashi said the downward pressure on the economy from rising COVID-19 cases appears to have eased, but demand for face-to-face entertainment and services has yet to return to the pre-pandemic levels. Rising goods prices are also clouding the outlook for private consumption, he said.

The government plans to expand support for struggling households amid rising energy and food prices, largely driven by Russia’s war in Ukraine, with a new relief package due be unveiled on Friday.

The rapid depreciation of the yen has raised concerns about the impact on the resource-scarce economy, as a weak yen inflates import costs.

Exports rose 0.9%, unchanged from initial data released last month, while imports rose 0.6% from 0.7%. Japan’s GDP benefited from a larger net contribution from external demand, the data showed.

The US Federal Reserve and other major central banks are raising interest rates to control soaring inflation. But aggressive rate hikes risk slowing economic growth, which would be negative for the Japanese economy, where exports remain a major driver of growth.

“It’s hard to expect a more robust economic recovery driven by external demand at a time when (the major central banks) are trying to rein in strong demand and soaring inflation,” Kobayashi said. “Economic growth will inevitably slow in the current quarter from April to June.”

Public investment was revised upwards to 1.0% from 0.9%.

Unadjusted for inflation, nominal GDP grew at a revised annualized rate of 2.5% in the quarter under review, down from 1.1%.

Category: Japan

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