Japan's economy continued to expand in the second quarter, though at a much slower pace than expected, amid signs that a tentative recovery in consumer spending is weakening.
Japan's GDP grew at an annual rate of 1.7 percent for the three months that ended June 30, less than the 4.2 percent growth pre-dicted by economists and slower than the 3 percent growth of the US economy during the same quarter.
The growth rate was a sharp slowdown from the 6.6 percent that Japan experienced in the first quarter. Although many economists had predicted that growth would slow to a more moderate rate, the deceleration was much sharper than expected.
"The pace is slowing down because the tremendous impetus that came from the surge in exports over the last nine months appears to be easing," Richard Jerram, an economist for Macquarie Securities in Tokyo, said before the figures were released on yesterday morning in Tokyo. "It's still positive but simply not as positive."
Jerram said that he expected the recovery to continue over the next year, though at a slower rate, as stronger demand at home picks up some of the slack left by slowing export growth.
While Japan's current economic recovery was initially driven primarily by exports to fast-growing China and the US, the big surge in growth in the first quarter was fueled by consumption at home. That was encouraging because it suggested the Japanese economy could keep growing even if slowdowns in China or the US curbed the rise in exports.
However, yesterday's numbers suggested the consumer rebound had already begun to trail off, leaving the economy again largely dependent on export growth.
External demand, fueled by strong exports, added 0.3 percent to the growth rate for the quarter, while demand at home contributed 0.1 percent.
The feeble contribution from domestic demand was a surprise because there had been signs recently that consumers were growing more confident amid brighter outlooks for jobs, corporate profits and income growth. Japan's unemployment rate was at its lowest level in more than three and a half years in June, at 4.6 percent, amid signs that companies are hiring workers again after years of cutting back.
Still, incomes have yet to rebound, a factor that may be putting a damper on consumer spending. Consumption among Japanese households declined by a surprising 2.6 percent in June, compared with figures a year earlier, serving as a warning that the recovery remains fragile.
Many economists, however, said they were not too alarmed by the fall, given that household spending rose for seven consecutive months before June's decline.
The public sector has also been a drag on the economy over the last few quarters, as government spending has been slowing.
Despite worries that the lift from exports will soon diminish, that sector remained relatively healthy in the second quarter. Automakers, consumer electronics companies and industrial equipment manufacturers are enjoying robust profit growth because of strong overseas sales. Japan's current account surplus rose 15.7 percent in June from a year earlier thanks to healthy export growth.
Still, one reason that economists expect Japan's expansion to slow over the next year is that China's torrid growth seems likely to cool off.
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