HEAVY capital spending in the second quarter drove Japan’s economy to grow much more quickly than first estimated to hit its fastest pace since 2016, although global trade tensions and a string of natural disasters pose risks to the outlook.

Revised Cabinet office data out yesterday showed the economy grew an annualized 3 percent in the April-June period, handily beating economists’ median estimate for 2.6 percent gain and posting the fastest growth since first-quarter 2016.

The preliminary reading was for a 1.9 percent expansion.

The economy’s improved performance should be a relief for policymakers worried about fallout from a trade war between the United States and China, which could derail global growth and in turn damage Japan’s export-reliant economy.

However, a recent run of soft data, such as exports and factory output, had fuelled doubts in the strength of growth. A series of disasters including floods, last week’s typhoon and an earthquake, prompted some analysts to forecast a contraction in the current quarter.

“Japan’s exports and factory output are set to slow in the July-September period as supply and shipments are constrained due to natural disasters and inbound tourism slumps,” said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.

“As such, Japan’s economy may suffer a temporary contraction in this quarter.”

The updated second-quarter growth showed quarter-on-quarter expansion of 0.7 percent in real, price-adjusted terms, compared with an initial reading of a 0.5 percent growth and the median estimate for a 0.7 percent gain.

The capital expenditure component of GDP grew 3.1 percent in the April-June period from the previous quarter, versus the median forecast for 2.8 percent growth, and the preliminary 1.3 percent gain. It was the fastest increase since the start of 2015.

A finance ministry survey last week showed corporate capex rose at the fastest pace in 11 years in the second quarter, driven by procurement of production equipment for cars and semiconductors.

Capital expenditure has been a bright spot in Japan’s economy, the world’s third largest, but companies remain cautious about sharing more of their profits with workers, keeping a lid on private consumption and inflation.

Private consumption, which accounts for roughly 60 percent of GDP, grew 0.7 percent in the April-June period from the previous three months, unchanged from the preliminary estimate. (SD-Agencies)