Public investment likely to contribute positively to Japanese economic growth in Q2

In the first quarter of this year, the Japanese economic growth had expanded stronger than anticipated, accelerating 2.2 percent sequentially. This was the fifth straight quarter of expansion for the first time in nearly 11 years. The domestic as well as external demand positively contributed to the real economic activity, with the biggest contribution coming from private consumption amidst a sharp rise in semi-durables spending, along with the ongoing rebound in durables in the past year.

In the meantime, private capital expenditure was up for the second straight quarter, whereas public investment dropped for the third straight quarter. However, public investment’s contribution is expected to be positive in the second quarter as the impacts of the current fiscal support program, under the FY2016 second supplementary budget, gradually unfold, estimated to contribute a total of 0.6 percentage points to the overall economic growth this year, said Eurobank in a research report.

The recent acceleration in Japan’s real economic activity has been mainly driven by surge in export volumes amidst rising global demand, whereas compensation and private growth has decelerated domestically. This shows that the Japanese economy is vulnerable to possible external disturbances, for instance rising protectionist U.S. policies, currently being discussed in the form of a border adjustment, added Eurobank.