Japan Q2 GDP came in stronger than expected. The consensus expectation was for contraction of -0.7%, but the result printed at -0.3%. Not exactly a good news story – more a not-so-bad story. The biggest surprise for us in today’s data was how well consumption has held up. Private consumption was down only 0.1% in the quarter. Expectations were for a 0.5% decline.
Partial activity indicators have been signally a relatively rapid recovery in output following the earthquake. After a sharp decline of over 15% following the earthquake, industrial production has risen in three consecutive months and is now only around 5% below its immediate pre-quake level. Machinery orders have also been picking up faster than expected.
Given the strength of recent activity indicators we expect Japan to return to growth in the third quarter. Export growth is likely to be tempered by the recent strength in the Yen and modest global growth. Power disruptions could still impact on activity as we move into summer, the peak period for energy consumption in Japan. On the plus side, earthquake rebuilding activity should be starting to provide some positive momentum from the fourth quarter.