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Japan July-Sept. GDP growth slows to 0.2% amid weak consumer spending

This file photo shows a Daimaru department store in Sapporo. (Kyodo)

TOKYO (Kyodo) -- Japan's economy grew for the fourth straight quarter in the July-September period, but at a slower pace than the previous quarter, as consumer spending ahead of a consumption tax hike was weaker than expected, government data showed Thursday.

The country's inflation-adjusted gross domestic product -- the total value of goods and services produced in the country -- expanded an annualized real 0.2 percent in the reporting quarter, following revised growth of 1.8 percent in the April-June period, the Cabinet Office said.

The preliminary reading fell short of the average forecast of 0.8 percent growth made by private-sector economists polled by Kyodo News. In the quarter, the world's third-largest economy grew a real 0.1 percent.

Economic and Fiscal Policy Minister Yasutoshi Nishimura told reporters, "The overall results showed a moderate economic recovery because of an increase in domestic demand such as personal consumption, capital investment and public works."

But Toru Suehiro, senior market economist at Mizuho Securities Co., cast doubt on optimism about the recovery, saying GDP might have shrunk had it not been for the slight bump in demand ahead of the tax increase.

Nishimura even admitted the scale of the last-minute buying was smaller than what was seen ahead of the previous consumption tax hike in April 2014, when the rate was lifted to 8 percent from 5 percent. Consumer spending expanded 2.0 percent in the January-March period of that year.

The tax was raised to 10 percent from 8 percent on Oct. 1, a move that was meant to help mitigate the country's ballooning social security costs in the face of a graying population.

"As there will be no last-minute buying and we do not expect any major positive factors, the economy is highly likely to contract in October-December," Suehiro said.

In the reporting period, private consumption, the biggest component of the Japanese economy, accounting for roughly 60 percent, rose 0.4 percent following a 0.6 percent expansion in April-June.

Government officials and economists have said private spending was sluggish in July and August due in part to climate factors, including a longer-than-usual rainy season, with purchases centered in September.

Analysts said slower consumer activity following a series of natural disasters hitting the country, including Typhoon Hagibis in October, throws into doubt whether Japan can extend growth to the October-December period. The focus will be on whether the economy recovers in the first quarter of next year and beyond.

Capital expenditure, another key pillar of domestic demand, increased 0.9 percent, as companies continued to invest in labor-saving and automation to deal with a serious labor shortage.

Public investment was up 0.8 percent, boosted by spending allocated in the fiscal 2018 second supplementary budget and fiscal 2019 initial budget.

But exports, viewed as one of the economy's major drivers of growth, dropped 0.7 percent from the previous quarter amid trade tensions between the United States and China.

A plunge in services exports stemming from sluggish spending by foreign visitors to Japan, on the back of a decline in South Korean travelers amid worsening bilateral ties, pushed down overall exports, Nishimura said.

As imports rose 0.2 percent in the reporting period, net exports -- exports minus imports -- subtracted 0.2 percentage point from GDP.

In nominal terms, or unadjusted for price changes, Japan's economy grew an annualized 1.2 percent, and a quarterly 0.3 percent.

The Cabinet Office is scheduled to publish the revised July-October GDP data on Dec. 9.

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