Japanese growth slows in Q2
Japan's economy expanded just 0.3 per cent between April and June, half the pace expected, raising doubts about the strength of the recovery.
The cabinet figures today provide fresh evidence of a global slowdown as growth in the United States, Europe and China flounders, raising expectations in financial markets that policymakers will take action to lift the world economy.
Economists had expected Japan's growth to pull back to 0.6 per cent after a strong expansion of 1.3 per cent in the first quarter when government subsidies on low-emission cars drove private consumption up at its fastest pace in three years.
But private consumption was weaker than expected and exports, traditionally the driver of Japan's economic growth, shaved 0.1 percentage point off of the quarter's gross domestic product.
"As domestic demand is losing momentum and exports will likely weaken further due to Europe's debt trouble, there is a possibility that Japan will go back into an economic lull in July-September," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance in Tokyo.
Policymakers expect reconstruction spending after last year's earthquake and tsunami to support economic activity until early next year. But global headwinds and the yen's strength are raising increasing worries among policymakers and companies about the prospects for already weakening exports.
Just last week, Bank of Japan Governor Masaaki Shirakawa warned the fallout from Europe's debt crisis was broadening and may delay a pickup in key markets for Japanese goods like the United States and China.
Analysts have slashed their forecasts for Japan's factory output, which is closely tied to the country's exports, as the slowdown in the global economy becomes more pronounced.
"Europe's sovereign debt crisis remains a major risk to Japan and the global economy," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
"The Bank of Japan will likely take a wait-and-see stance but it could act again next
month if financial turmoil and further monetary easing by the US Federal Reserve prompt a spike in the yen, threatening Japanese exporters' earnings and the economy's recovery prospects."
Despite the slowdown, April-June growth of 0.3 per cent is close to Japan's average quarterly growth over the last decade of 0.24 per cent, suggesting a pull back to its long-term trend.
Indeed, economics minister Motohisa Furukawa said Japan's economy was growing at a healthy pace. The slowdown was largely a reaction to unusually strong growth in the previous quarter, he said. "Japan's economy continues in an uptrend led by domestic demand," he told a news conference, adding that the government would consider a supplementary budget to support the economy "if necessary".
On an annualised basis, the world's third-largest economy grew 1.4 per cent in the April-June quarter, less that the median 2.5 per cent forecast and slightly below the 1.5 per cent annualised pace of the United States.