Japan Q2 GDP slump may be worse than expected

TOKYO: Japan’s economy likely shrank more than previously estimated in the second quarter as capital expenditure took a hit from the coronavirus pandemic, a Reuters poll showed, highlighting the challenge policymakers face in averting a deeper recession.

Separate data is expected to show household spending was hit by a bigger annual drop in July than in June, a sign the COVID-19 pandemic is keeping consumers cautious about shopping.

The slew of data due out next week underscores the daunting task the new prime minister, to be elected in a ruling party leadership race later this month, faces in seeking to contain the pandemic while avoiding restrictions on business activity.

“Unless a fundamental solution to the pandemic is found, we’ll likely face a trade-off between steps to prevent the spread of the virus and efforts to revive the economy,” said Shunsuke Kobayashi, chief economist at Mizuho Securities.

“The focus will be on an extra budget likely to be compiled during the autumn Diet session. But the impact on growth will be short-lived as long as we face the trade-off,” he said.

Japan’s gross domestic product (GDP) is expected to have shrank an annualised 28.6 per cent in April-June, more than a preliminary reading of a record 27.8 per cent contraction, according to the poll on 19 economists.

The main culprit behind the revision is an expected 3.1 per cent drop in capital expenditure, a bigger fall than a preliminary 1.5 per cent decline, the poll showed.

The Cabinet Office will announce the revised GDP data at 8:50 am on September 8 Japan time.

Household spending in July likely fell 3.7 per cent from a year earlier, more than a 1.2 per cent drop in June, hit by bad weather and social distancing policies to contain the pandemic.

Core machinery orders, a leading gauge of capital expenditure, likely rebounded, rising 1.9 per cent in July after a 7.6-per cent decline in June, offering some hope of a pick-up in corporate spending appetite, the poll showed.

— Reuters