Japan second-quarter GDP shrinks by 7.1% Japan’s economy shrank an annualised 7.1 per cent in April-June from the previous quarter, worse than a preliminary estimate, and adding to doubts over whether the central bank can achieve its target of two per cent inflation early next year, Reuters reported. The contraction was the biggest since January-March 2009, when the global financial crisis hit Japan’s exports and factory output, and some analysts now expect the economy to barely grow in the current fiscal year to March 2015. The weak performance following a sales tax hike in April will keep the Bank of Japan and Prime Minister Shinzo Abe’s government under pressure to expand fiscal and monetary stimulus in order to lead the economy out of a long deflationary phase. “Growth this year will be less than what policymakers are expecting. The BOJ will ease policy in April because inflation will be too low to meet its target,” said Takuji Aida, chief economist at Societe Generale Securities. GDP was revised down from a preliminary 6.8 per cent drop, according to Cabinet Office data released on Monday, and was more than the median market forecast for a 7.0 per cent decline in a Reuters poll of economists. The revision was largely due to a bigger than expected fall in capital expenditure and a deeper decline in consumer spending, suggesting the economy could struggle to overcome the April sales tax increase. The weakness in capital expenditure casts doubt on the BOJ’s expectations that companies, which saw revenues rise thanks to the stimulus policies undertaken so far, will boost investment and hiring. The central bank has said consumer inflation will head toward its two per cent target as long as the economy grows above its potential, considered around 0.5 per cent. The latest data suggested that was in the balance, with several analysts expecting even more minimal growth. “Recent data have been weak overall, and the economic recovery has been slower than projected,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, who expects the economy to stay flat this fiscal year. Takeshi Minami, chief economist at Norinchukin Research Institute, also cut his projection to 0.2 percent growth for the current fiscal year, citing sluggish capital spending. “Inflationary pressure will weaken reflecting sluggish economic growth,” he said. “At some point, the government and the BOJ will have to take some steps (to revive growth).” In its latest forecast issued in July, the BOJ expects the economy to expand 1.0 percent in the current fiscal year, more than the 0.4 per cent increase forecast in a Reuters poll last month. The bank is set to cut that projection at its next review its long-term projections in late October, sources have told Reuters. Adding to the gloom, Japan’s service sector sentiment worsened for the first time in four months in August as bad weather kept consumers at home.
Posted on: Tue, 09 Sep 2014 14:34:57 +0000
Trending Topics
Recently Viewed Topics
© 2015