Japan: GDP is seen expanding 2.5% in 2021 – UOB

Senior Economist Alvin Liew at UOB Group reviews the latest GDP release as well as growth prospects for the Japanese economy.

Key Takeaways

“Japan’s economic growth came out stronger than expected in the second quarter despite the resurgence of COVID-19 infections and the imposition of the 3rd state of emergency in mid-Apr. Its 2nd preliminary estimate of 2Q 2021 GDP grew by 1.9% q/q SAAR, (topping Bloomberg Est +1.6%, and up from prelim Est of 1.3%) but the 1Q decline was revised lower to -4.2% (from -3.7% previously).”

“The resurgence of COVID-19 infections is the immediate downside risk for Japan while the positive factor is the ongoing manufacturing recovery, amidst the acceleration of the vaccine rollout but services remained weak. The immediate spotlight is on Japan’s new leadership race after the surprise resignation of PM Suga with the ruling LDP’s 29 Sep Party Elections in focus, and the next PM may potentially inject more fiscal stimulus to help the economy tide over the new waves of COVID-19 infections ahead of this year’s general election. Overall, we expect Japan to continue its growth trajectory in 2H (3.0% q/q SAAR in 3Q and 3.2% in 4Q) and we maintain our full-year GDP growth at 2.5% in 2021, compared to the 4.7% contraction in 2020. Growth is thereafter expected to ease further to 2.2% in 2022.”