Japanese growth smashes expectations

TOKYO

Quarterly growth data for Japan smashed expectations yesterday as car exports rebounded and tourists flooded back, but economists cautioned that it may not last.

The world's third-largest economy expanded 1.5 percent quarter-on-quarter in the three months to June, the fastest rate since the fourth quarter of 2020.

This was almost double the average economist forecast of 0.8 percent and followed revised growth of 0.9 percent in the previous quarter.

On an annualised basis, growth was 6 percent, more than double the market expectation of 2.9 percent.

"Japan's exports have recovered as the supplies crisis eased for the auto sector while the yen's depreciation provided support," said Ryutaro Kono, chief economist at BNP Paribas.

The hospitality sector is expected to remain a driver of economic growth due to the increase in inbound tourism, according to Hiroyuki Ueno at SuMi TRUST.

The chief economist of the IMF said last month that Japan was "one of the few advanced economies that is doing better in 2023 than in 2022.

However, economists said that the data also underscored the continued weakness of domestic demand as Japanese families struggle with rising prices.

Marcel Thieliant at Capital Economics said that real household disposable income plunged by 4.5 percent year-on-year in the quarter, and that it would continue to fall until the second half of next year.

Exports grew 3.2 percent compared with the previous quarter, mostly due to a "huge" 14 percent jump in car shipments as supply shortages eased.

"But with car exports now at a record-high and Japanese carmakers having fallen back in the electric vehicle race, that's unlikely to be sustained," Thieliant said, forecasting a "renewed slowdown across the second half of the year."