Japanese economic recovery slows, allowing China to outrank Japan

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TOKYO, Aug. 16 Kyodo -
The pace of Japanese economic recovery slowed in the quarter through June on
weak consumer and business spending, allowing fast-growing China to outrank
Japan as the world's second-largest economy in the period, the government said
Monday.
The economy expanded an annualized real 0.4 percent amid the diminishing
effects of fiscal stimulus, considerably below the average market forecast of
2.3 percent growth in a Kyodo News survey.
The sluggish outcome could lead to pressure on the government of Prime Minister
Naoto Kan to consider fresh measures to help sustain the nascent recovery from
the global financial turmoil, as well as on the Bank of Japan to further ease
its monetary policy.
''We need to closely watch (the economy) including foreign exchange,'' Kan told
reporters, referring to the growth data and the recent sharp rise in the yen
against the U.S. dollar and other major currencies, which has had a negative
impact on the earnings of Japanese exporters.
Kan also said he has ordered some of his Cabinet members to report on current
economic conditions. But he did not mention whether the government believes
fresh fiscal stimulus is necessary.
Satoshi Arai, state minister in charge of economic and fiscal policy, said
earlier in the day that he remains vigilant about downside risks such as
uncertainty over the U.S. and European economic outlooks, and that the
government will first check revised data for the period's gross domestic
product, due out in September, before discussing any need for further stimulus
steps.
The economy, as measured by GDP, grew for the third straight quarter thanks to
exports, following a downwardly revised 4.4 percent expansion in the
January-March period and 4.1 percent growth in the October-December quarter.
The latest annualized figure is equivalent to a 0.1 percent quarter-on-quarter
expansion, also lower than the average market forecast of 0.6 percent growth in
the Kyodo survey.
The release of the data sent Tokyo stocks sharply lower, with the key Nikkei
index temporarily losing nearly 2 percent.
The Cabinet Office said Japan's GDP stood at $1,288.3 billion in the April-June
quarter while that of China came to $1,336.9 billion on an unadjusted,
comparable basis, adding to expectations that China will outpace Japan as the
world's second-biggest economy after the United States on a yearly basis as
well within 2010.
Japan still outranked China in size in the January-June period, the government
said, adding that China's published data may not square with Japan's as they
are seasonally unadjusted.
GDP is the total value of goods and services produced domestically and real GDP
is adjusted for price and seasonal variations.
Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., said the
Japanese economy has slowed earlier than expected despite prior expectations
that such a slowdown would become clear in the July-September period.
''It could further slow down within this year on effects that are due largely
to overseas factors,'' Kanno said, referring to uncertainty over the outlook
for the U.S. and other major economies. ''This could press (the government and
the BOJ) to consider some policy responses,'' he said.
Japan's weak GDP data came as consumer confidence is slumping and companies are
cutting investment, although robust exports have underpinned a recovery that
started in April 2009 after the economy was battered by the global financial
crisis from the fall of 2008, the office said.
Consumer spending, which makes up around 60 percent of Japanese GDP, rose only
0.03 percent from the previous quarter, mainly affected by a slump in sales of
durable goods such as televisions and cars. It slowed from a 0.5 percent rise
in the previous three months.
The office said the sales slowdown followed a surge in demand for such products
in the previous quarter, which came before the expiration of the government's
''eco-car'' subsidy and ''eco-point'' incentive programs for appliances in
September and December, respectively.
In another sign of faltering domestic demand, corporate capital spending grew
0.5 percent, up for the third straight quarter but the weakest figure in the
streak. The recent surge of the yen in the currency market could depress
already weak sentiment among Japanese companies, the office said.
The economic recovery has continued to be led by exports. External demand drove
GDP up 0.3 percentage point while domestic demand pushed it down by 0.2 point,
adding to the evidence that the recovery is far from autonomous.
Exports rose 5.9 percent on strong demand from Europe. But the pace of growth
slowed from a 7.0 percent rise in the previous quarter amid signs of an
economic slowdown in China, one of the biggest destinations for Japanese
exports.
On a nominal basis, before adjustment for price-level changes, Japan's economy
shrank 0.9 percent from the previous quarter, or an annualized 3.7 percent, in
the April-June quarter, the first contraction in three quarters.
The gap between the real and nominal data reflected falling prices in the
economy and the contraction was largely due to the one-time effect of surging
vegetable prices in the previous quarter, the office said. The GDP deflator, a
broad measure of price trends, dropped 1.0 percent, compared with a 0.3 percent
rise in the previous quarter.
Among other components, housing investment slipped a real 1.3 percent, down for
the first decline in two quarters, while public investment decreased 3.4
percent for the fourth straight quarter of decline.
Partially revising the way GDP figures are calculated to improve accuracy, the
government said the economy contracted 0.3 percent quarter on quarter between
July and September 2009, against the earlier reported growth of 0.1 percent.
==Kyodo
2010-08-16 22:50:56