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--Updates Story Published on Aug. 1 With Latest Consumption Data in 12th
Paragraph, Q3 GDP Forecast by Economists in ESP Survey in Paragraphs 23-24
     TOKYO (MNI) - Japan's gross domestic product for the April-June quarter is
expected by economists to post solid growth of 0.7% on quarter, or an annualized
2.6%, as strong domestic demand offset a temporary slip in external demand.
     The median forecast for Q2 GDP is based on projections by 10 economists,
which ranged from +0.5% to +0.9% on quarter, or an annualized +2.2% to +3.6%.
     The Cabinet Office will release preliminary GDP data for the second quarter
of 2017 at 0850 JST on Monday, Aug.14 (2350 GMT on Sunday, Aug. 13).
     The expected above-potential expansion in Q2 would be the sixth consecutive
quarterly gain and the highest since +0.7% on quarter, or +3.0% annualized, in
Q4 of 2014.
     GDP rose 0.3% on quarter, or an annualized +1.0%, in January-March, led by
strong capital investment and private consumption.
     The Q2 GDP growth was led by consumption, business investment and public
investment, economists said.
     Wage hikes have been slow but household income has shown a modest increase
while some firms are coping with labor shortages by investing in equipment. The
stimulative effect of the fiscal 2016 supplementary budget emerged in Q2,
pushing up public works spending.
     The median forecast for private consumption, which accounts for about 60%
of GDP, is +0.5% on quarter in Q2 (ranging from +0.3% to +0.7%), up from +0.3%
in Q1.
     BNP Paribas chief economist Ryutaro Kono said in a report that private
consumption is expected to have posted the sixth straight quarterly rise
"against the backdrop of a falling risk of losing jobs in the very tight labor
market and a continued modest recovery in average wages."
     Consumption was also supported by stable fresh food prices in Q2 and
emerging demand for replacing automobiles and other durable goods that were
purchased with the help of government subsidies for fuel efficient cars and
electronics, he said.
     The core household spending index, which excludes housing, motor vehicles
and other volatile items -- close to private consumption patterns in GDP data --
rose 0.8% on month in June on a seasonally adjusted basis, the first
month-on-month gain in two months. Q2 core spending is estimated by economists
to be +1.1%.
     The Cabinet Office's Private Consumption Integrated Estimates index, which
is based on both supply- and demand-side data, posted the second straight
quarterly increase, up 0.7% on quarter in April-June after rising 0.3% in
     The BOJ's supply-side Consumption Activity Index rose a real 1.1% on a
seasonally adjusted basis in April-June following a 0.8% rise in the first
     Economists expect capital investment to have risen 1.4% on quarter for the
third straight q/q rise after +0.6% in Q1, with their forecasts ranging from
+0.6% to +2.0%.
     Industrial production rose 1.9% on quarter in April-June, marking the fifth
straight quarter-on-quarter rise after +0.2% in January-March.
     Shipments of capital goods excluding transport equipment -- a key indicator
of the business investment component of GDP data -- fell 1.4% on month in June
but they rose 4.8% on quarter in April-June, the first rise in two quarters.
     On the downside, the contribution of net exports of goods and services --
exports minus imports -- is forecast by economists to have fallen 0.3 percentage
point (forecasts ranged from -0.0 to -0.3 point) in April-June for the first
drop in four quarters after rising 0.1 percentage point in the previous three
     The BOJ's real export index fell 0.5% on quarter in the second quarter
after rising 2.9% in the first quarter and 2.4% in the fourth quarter of 2016 as
solid gains to the U.S. and Europe was more than offset by declines in shipments
to Asia and other regions.
     "Real exports fell on quarter in April-June, but the drop seems to be in
response to large gains in the previous quarter and does not suggest a slump in
global growth." said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset
     "Net exports are estimated to have fallen 0.2% on quarter in Q2 as imports
grew at a faster pace than exports did," Hamagin Research Institute economist
Yuki Endo said. "But the slowdown seems to be temporary, as telecommunications
equipment exports are likely to pick up toward year-end as demand for iPhone
parts increases."
     NLI Research Institute said in a report that the economic recovery in the
second half of calendar 2016 was due mainly to overseas demand but that the
economy is moving toward a recovery led by domestic demand this year.
     Looking ahead, economists expect a moderate economic recovery to continue
in July-September, based on a rise in exports and a moderate recovery of
domestic demand. But they also warned that the uncertainty over global demand is
a high downside risk to Japan.
     The average economist forecast for Q3 GDP growth is an annualized 1.44%
rise, down from a projected 2.24% expansion in Q2, according to the latest
monthly ESP Forecast Survey of 42 economists by the Japan Center for Economic
Research conducted from July 25 to Aug. 1.
     The survey showed economists projected a gradual slowdown in the GDP growth
rate toward 1% in Q3 onward.
     Mizuho Research Institute said in a report that a recovery of overseas
economies would support exports and capital investment in the third quarter.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:
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