Japan’s GDP growth misses expectations in Q2, momentum likely to pick up slightly in H2

The Japanese economic growth for the second quarter came in below consensus expectation, on declining exports and subdued corporate investment. Japan’s GDP grew 0.2 percent quarter-on-quarter in second quarter, as compared with consensus projection of 0.7 percent growth. The Japanese economy had grown 2 percent in the initial three months of 2016. The weakness in the GDP growth was mainly due to exports that declined 5.9 percent and private non-residential investment that fell 1.5 percent.

Meanwhile, a modest growth of 0.6 percent was recorded in private consumption. This was also a tad lower than projections. On the bright side, public investment and residential investment both registered solid growth in the second quarter, rising 9.5 percent and 21.3 percent respectively.

“With the 2Q GDP missing estimate, the risks to our full-year forecast of 0.5 percent are skewed to the downside. Nonetheless, our view remains that growth momentum will pick up slightly in 2H16,” said DBS Bank in a research report.

During the end of second quarter, exports gave signs of recovery. They are expected to improve in the second half of 2016 due to seasonal demand in the electronics sector, added DBS. Public spending is expected to continue underpinning the construction sector, given that the government has introduced a new stimulus package and is expected to implement from the fourth quarter of this year.

However, business investment and consumption are expected to remain subdued due to heightened external and domestic uncertainties coming from slowdown in emerging markets, JPY’s volatility and negative interest rates, according to DBS.