Japan’s economy grew slower-than-forecast in the final quarter of last year, clouding the outlook for recovery ahead of a sales tax increase in April.
Japanese government figures released yesterday showed the world’s third-largest economy expanded 1 percent on annualized basis in the October-to-December quarter.
From the prior July-to-September quarter, GDP grew 0.3 percent. That matched growth in struggling Europe, but was less than half of some forecasts, despite a boom in housing construction and stronger public and private spending.
Slower growth in China and other major markets has taken a toll on Japanese exports, sapping growth at a critical time for Japanese Prime Minister Shinzo Abe’s recovery strategy.
“The export environment is not improving as much as expected,” Japanese Minister of Economics, Trade and Industry Akira Amari told reporters.
Still he said the recovery remained steady, supported by consumer demand. Japan’s consumer price index rose 0.4 percent last year, the first increase in five years.
The economy grew an estimated 1.6 percent last year, according to preliminary data from Japan’s Cabinet Office, just slightly faster than the 1.4 percent expansion in 2012.
Since the economy emerged from recession in late 2012 it has expanded four quarters in a row, supported by a combination of strong government spending and aggressive monetary easing.
The Bank of Japan’s monthly monetary policy meeting began yesterday. The bank was expected to keep monetary policy unchanged, while promising more action if necessary to cushion the blow to consumer and corporate demand from a 3 percent sales tax increase that takes effect on April 1.
Many economists expect the central bank to stand pat for now as price increases and growth continue, though at a slower pace than desired.
“To be sure, we expect further policy easing later this year, but not on a Q4 GDP trigger,” Mizuho Bank said in a commentary yesterday.
The Japanese government has already promised ￥5.5 trillion (US$54.2 billion) in fresh stimulus.
Private residential spending rose nearly 18 percent from the previous year in the October-to-December quarter and 9 percent for the year.
Economists expect the tax hike to cause the Japanese economy to contract in April to June after expanding in this quarter, as consumers move up purchases to beat the tax hike and then tighten their belts afterward to compensate for higher costs.
A telephone survey by the Mainichi Shimbun showed 65 percent of respondents plan to cut spending after the tax hike.
Other recent data have been mixed.
Corporate demand for bank loans has risen moderately, climbing 2.1 percent last year from the year before, compared with an average annual decline of 1.5 percent from 2000 to 2012.
Japanese companies appear to be focusing much of their investment on overseas markets.
Machinery orders, a major trend setter for corporate spending, fell 3.1 percent month-on-month in December last year, with core private sector orders dropping 15.2 percent, the biggest plunge since the Japanese government began its current data series in 2005.
“The sharp fall in machinery orders in December casts doubt on whether the fledgling recovery in business investment will continue,” Capital Economics economist Marcel Thieliant said. “Overall investment is set to weaken in coming months as housing construction will likely fall sharply after the consumption tax hike in April.”