Q2 GDP Growth Revised Up To 0.9% q/q

GDP growth was upward revised to 0.9% q/q (from 0.6%) due to increased capital spending. These data correspond better with surveys and business conditions indicators. The effects of Abenomics are mainly felt in export-oriented sectors and construction. Despite signs of deceleration, economic growth is likely to remain strong – around 0.75% q/q during the second half of the year.

Le PIB au T2 a été révisé en hausse, à 0,9% q/q (contre 0,6%) sous le jeu d’un investissement plus dynamique et en ligne avec les enquêtes et autres indicateurs conjoncturels. Les effets de l'Abenomics sont principalement ressentis dans les secteurs exportateurs et le bâtiment. En dépit des signes de décélération, la croissance du PIB devrait rester soutenue – aux alentours de 0,75% q/q -- pendant le deuxième semestre.

The Cabinet Office has revised upward GDP growth to 0.9% q/q from 0.6% at the first preliminary estimate. This is due to a large upward revision in private investment (from -0.1% to 1.3%) and government investment (from 1.8% and 3.0%). These data correspond better with surveys and business conditions indicators.

The bottom line is that GDP growth was very robust in the first half of this year, driven both by domestic and external demand. Domestic demand is strengthening as the effect of the fiscal stimulus is coming through and companies are stepping up investment. By contrast, the external component is showing signs of weakening. The net contribution of trade to growth declined from 0.4 point in Q1 to 0.2 point in Q2. This is largely related to the slowdown in global growth.

Economic growth is showing signs of weakening. For example, the diffusion indices of the Economy Watchers Survey are on a declining trend. In August (data also published data), the overall current conditions index inched down to 51.1. It was the fifth consecutive monthly decline. The business conditions indicators – released last Friday – showed an improvement in the leading indicator in July, although it remained below the peak reached in May.

The main problem for the economy is that the effects of Abenomics are mainly felt in the export-oriented enterprises, thanks to the sharp depreciation of the yen, and the construction sector due to increased public works. However, households and companies working mainly for the domestic market have been confronted by higher energy prices which have not been offset by higher wages or sales prices. Consumer confidence, also published today, declined in August for the third consecutive months. Households, getting more concerned about their financial position, have become less willing to make large purchases. The diffusion indices of businesses mainly working for households declined in August below the 50 mark, as the majority of these firms have reported falling demand. Nevertheless, we expect the economy to grow by a still very robust 0.75% q/q rate in H2 2013. Housing investment will be among the main drivers.

BY Raymond VAN DER PUTTEN

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