The Japanese economy sprang an exceptionally positive surprise in the second quarter: its economic output increased according to the first preliminary estimates by a seasonally-adjusted 0.5 per cent quarter-on-quarter. Such a growth rate had not been expected at all after the negative result of -0.2 per cent for the first quarter and after the generally rather modest growth and sentiment indicators in the spring months.
This positive trend in the second quarter was driven mainly by a strong turnaround in private consumption expenditure. This was 0.7 per cent higher than in the previous quarter, which was the biggest increase for a year. Private investment excluding residential construction, which increased 1.3 per cent (quarter-on-quarter) also played an important part in the recent surge in growth. But residential construction itself declined further, down -2.7 per cent, having already posted significantly negative rates in the three previous quarters. The public sector generated only moderate stimuli in the spring quarter: public sector consumption increased by only 0.2 per cent, at the same time public sector investment fell -0.1 per cent, their fourth consecutive quarterly decline. Net exports of goods and services were slightly negative: while exports (goods and services) grew by +0.2 per cent, which was less than half the growth rate in the previous quarter, imports increased by +1.0 per cent. So overall, net exports had a negative impact of 0.1 per centage points on economic growth.
Even after these overall very positive figures, on balance we remain rather sceptical for Japan’s growth in the second half of the year. In our view, it is doubtful that the Japanese economy will be able to sustain its recent pace of growth especially as the consumer confidence index already charted its third consecutive decline in July and incoming orders in manufacturing industry have also declined recently. Nor is the fact that the state is showing restraint as regards investments at the moment helpful for growth. It also remains to be seen how Japan’s export sector will perform in the current global environment, which has deteriorated significantly and is impaired by the trade sanctions repeatedly imposed by the USA. Japan is also exposed to substantial economic risks from this side.