Japan's Real GDP Plummets 6.8%

Japan’s economy shrank in the April-June period at its fastest pace in 13 quarters, as personal consumption tumbled following the April 1 consumption tax increase from 5 percent to 8 percent, government data showed Wednesday.

In price-adjusted real terms, the country’s gross domestic product contracted 6.8 percent at an annualized rate in the fiscal first quarter, marking the first negative growth in two quarters, the Cabinet Office said in a preliminary report.

The decline was the steepest since the 6.9 percent drop in GDP seen in January-March 2011, which reflected the aftermath of the magnitude-9.0 earthquake and tsunami that struck the country’s northeast on March 11 that year.

The latest April-June fall was far bigger than the 3.5 percent decrease of April-June 1997, after the previous consumption tax increase from 3 percent to 5 percent.

Still, the results were better than the median forecast in a Jiji Press survey of 22 economic research institutes, which predicted a 7.2 percent drop.

Compared with the previous quarter, GDP shrank 1.7 percent in April-June. In nominal terms, GDP fell 0.1 percent from the previous quarter for an annualized drop of 0.4 percent, the government agency said.

Late this year Prime Minister Shinzo Abe is set to decide whether to proceed with a further increase in the consumption tax to 10 percent, currently planned for October 2015. One key factor will be how much the economy recovers in July-September.

Speaking to reporters in Shimonoseki, Yamaguchi Prefecture, Abe said the government is “ready to act in an appropriate manner to ensure that the economy is brought back to a growth path.”

At a press conference in Tokyo, Economic and Fiscal Policy Minister Akira Amari said that the economy is expected to stage a moderate recovery in the quarters to come.

“Effects from a backlash after the surge in demand before the April 1 consumption tax hike are likely to wane gradually,” he said.

Growth in July-September may be large, given the sharp shrinkage in April-June, but the fiscal first half is likely to turn out to be weak, said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co.

“Later, growth is expected to be weaker than estimated by the government and the Bank of Japan,” he said.

Personal consumption plunged 5.0 percent in April-June from the previous quarter, due chiefly to lower demand for vehicles and home appliances, marking its steepest decline since comparable data became available in January 1994 and the first drop in seven quarters.

Housing investment declined 10.3 percent and corporate capital expenditures fell 2.5 percent, reflecting a fall in demand after a last-minute surge before the latest tax increase.

Public investment fell 0.5 percent, down for the second straight quarter, mainly because of delays in public works projects. Exports declined 0.4 percent and imports fell 5.6 percent.

As a result, domestic demand made a negative contribution of 2.8 percentage points to the country’s quarter-on-quarter real GDP growth.

By contrast, external demand, or net exports, pushed up GDP growth by 1.1 points, the first positive contribution in four quarters.

The GDP deflator, a price trend gauge, rose 2.0 percent from a year before, marking its first gain since July-September 2009, due to effects from the consumption tax increase.

The country’s real GDP for October-December 2013 was revised down to a drop of 0.05 percent from the previous quarter for an annualized fall of 0.2 percent. Previously, the government had reported positive growth for the period.

Jiji Press


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