Japan Economic Growth Halves in September Quarter
Japan said Thursday that growth halved in the July-September quarter as exports weakened and consumer spending slowed, but economists were divided over what it meant for Tokyo's drive to fire up the economy.
The once-anaemic economy has lately been outpacing growth in other G7 nations as a policy blitz led by Prime Minister Shinzo Abe helped push down the yen, giving a boost to exporters and sparking a stock market rally.
That has stoked optimism over Japan's prospects, but official data Thursday showed the world's third-largest economy expanded at annualized rate of 1.9 percent, a marked slowdown from the 3.8 percent rise in the previous three months.
However, the figure is higher than the 1.7 percent increase forecast in a poll of economists by the Wall Street Journal and Tokyo's Nikkei stock index was up 2.50 percent in the afternoon, helped by a weakening yen.
On a quarter-on-quarter basis the economy grew 0.5 percent, slightly higher than expectations but well down from the 0.9 percent increase in the previous three months.
The figures mean Japan's headline-grabbing growth in the first half of the year has now fallen behind the U.S. economy, which expanded 2.8 percent in the three months to September.
Analysts have been warning that Tokyo's bold pro-growth program -- a mix of big government spending and central bank monetary easing -- is not enough on its own without promised economic reforms.
The proposed shakeup, including loosening rigid labor laws and signing wide-ranging free trade deals, are seen as key to ushering in lasting change in an economy plagued by years of deflation.
On Wednesday, Japanese legislators passed a bill that paves the way for an opening up of the electricity sector, but other key reforms have so far been mostly talk.
That has raised the prospect of the Bank of Japan having to expand its already unprecedented monetary easing measures, launched in April, to give another jolt to the economy, analysts said.
Critics of Abe's policy -- dubbed "Abenomics" -- say growth so far is largely thanks to stimulus spending and the BoJ's injections of vast amounts of money into the financial system, similar to the U.S. Federal Reserve's quantitative easing.
Despite the downbeat data Thursday, Masahiko Hashimoto, economist at Daiwa Institute of Research, said it was too early to cast a verdict on Abenomics with consumer spending still "solid" and exports expected to turn up as key Asian demand bounces back.
"Income is improving," Hashimoto said, adding that personal spending would "surely accelerate" before a sales tax hike takes effect in April.
But Masamichi Adachi, senior economist at JPMorgan Securities, was less optimistic, saying much of growth so far was driven by public works spending.
"This is a slowdown of Abenomics," Adachi said. "The Japanese economy will be tested after the sales tax hike," he added.
The nation's factories have been expanding production, with demand from Japanese consumers for electronics and cars improving ahead of the tax increase, which is seen as crucial to bringing down the country's staggering national debt.
Japan has the heaviest debt burden among wealthy nations with a national debt standing at more than twice the size of the economy. Critics of the debt pile, including the International Monetary Fund, have been calling on Tokyo to gets the country's fiscal house in order.
Revised data published Thursday showed factory output in September grew 1.3 percent, weaker than an initial reading of 1.5 percent.
And cautious firms have been reluctant to usher in widespread pay or capital spending rises, seen as key to any concrete growth, after years of lacklustre consumer demand weighed on their expansion.
Deflation encourages consumers to put off spending in the hope goods will be cheaper down the road, which hurts producers.
Still, business confidence is high and Japan's thrifty households have been boosting their spending as unemployment has turned down, suggesting a tighter jobs market, while wages have been creeping higher.
Source: Agence France Presse
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