Ja­pan econ­omy shrinks more than ex­pected

The Pak Banker - - BUSINESS -

Ja­pan's econ­omy shrank more than ex­pected in the fi­nal quar­ter of last year as con­sumer spend­ing and ex­ports slumped, adding to headaches for pol­i­cy­mak­ers al­ready wary of dam­age the fi­nan­cial mar­ket rout could in­flict on a frag­ile re­cov­ery.

Gross do­mes­tic prod­uct con­tracted by an an­nu­al­ized 1.4 per­cent in Oc­to­ber-De­cem­ber, big­ger than a mar­ket fore­cast for a 1.2 per­cent de­cline and match­ing a fall marked in the se­cond quar­ter of last year, Cab­i­net Of­fice data showed on Mon­day. It fol­lowed a re­vised 1.3 per­cent in­crease in the pre­vi­ous quar­ter. The data un­der­scores the chal­lenges premier Shinzo Abe faces in drag­ging the world's third­largest econ­omy out of stag­na­tion, as ex­ports to emerg­ing mar­kets fail to gain enough mo­men­tum to make up for soft do­mes­tic de­mand.

Abe sought to re­as­sure mar­kets that Tokyo is ready to stem ex­ces­sive mar­ket volatil­ity that could un­der­mine the wealth ef­fect de­liv­ered by his stim­u­lus poli­cies. "As we have agreed at G7 and G20, sud­den cur­rency moves are un­de­sir­able. I want the fi­nance min­is­ter to closely mon­i­tor the sit­u­a­tion and re­spond with ap­pro­pri­ate mea­sures as needed," he told par­lia­ment on Mon­day. Mar­ket spec­u­la­tion of ad­di­tional mon­e­tary eas­ing sim­mers, al­though the Bank of Ja­pan's pol­icy am­mu­ni­tion ap­pears to be dwin­dling, an­a­lysts say.

"Pri­vate con­sump­tion is es­pe­cially weak. The econ­omy is at a stand­still," said Junko Nish­ioka, chief econ­o­mist at Su­mit­omo Mit­sui Bank­ing. "It's a mat­ter of time be­fore the BOJ and the govern­ment will take ad­di­tional stim­u­lus mea­sures," she said, pre­dict­ing the cen­tral bank will ease pol­icy again as early as next month.

With his stim­u­lus poli­cies that gave big man­u­fac­tur­ers wind­fall prof­its, Abe had hoped to gen­er­ate a pos­i­tive cy­cle in which com­pa­nies raise wages and help boost house­hold spend­ing. In­stead the data showed that pri­vate con­sump­tion, which makes up 60 per­cent of GDP, fell 0.8 per­cent, ex­ceed­ing mar­ket fore­casts of a 0.6 per­cent de­cline.

Since Abe took power three years ago, pri­vate con­sump­tion has shrank by roughly 1.5 tril­lion yen to 306.5 tril­lion yen ($2.7 tril­lion). The econ­omy grew an av­er­age 0.68 per­cent since Abe's ad­min­is­tra­tion took of­fice in 2013, below a 1.8 per­cent in­crease dur­ing the op­po­si­tion Demo­cratic Party's three-year reign. Of­fer­ing some hope for pol­i­cy­mak­ers, cap­i­tal ex­pen­di­ture rose 1.4 per­cent, con­found­ing mar­ket ex­pec­ta­tions for a 0.2 per­cent de­crease.

But an­a­lysts doubt whether the econ­omy will gain mo­men­tum in com­ing months, with the re­cent mar­ket tur­bu­lence and slow­ing Chi­nese growth cloud­ing the out­look for cor­po­rate prof­its. Ex­ports fell 0.9 per­cent in Oc­to­ber- De­cem­ber af­ter ris­ing 2.6 per­cent in the pre­vi­ous quar­ter, un­der­scor­ing the pinch com­pa­nies are al­ready feel­ing from soft emerg­ing mar­ket de­mand. Do­mes­tic de­mand shaved 0.5 per­cent­age point off GDP growth, while ex­ter­nal de­mand - or net ex­ports - added just 0.1 point. Last month the BOJ cut a bench­mark in­ter­est rate below zero, stun­ning in­vestors with an­other bold move to stim­u­late growth. But the shock move has failed to boost Tokyo stock prices or weaken the yen as Ja­panese mar­kets re­mained at the mercy of a global equity sell-off.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.