Japan’s economy slips into recession
Abe may delay sales tax hike
JAPAN’S economy unexpectedly slipped into recession in the third quarter, setting the stage for Prime Minister Shinzo Abe to delay an unpopular sales tax hike and call a snap election two years before he has to go to the polls.
The recession comes nearly two years after Abe returned to power promising to revive the economy with his “Abenomics” mix of massive monetary stimulus, spending and reforms, and is unwelcome news for an already shaky global economy.
Gross domestic product (GDP) shrank by an annualised 1.6 percent in July-September, after plunging 7.3 percent in the second quarter following a rise in the national sales tax, which clobbered consumer spending.
The world’s third-largest economy had been forecast to rebound by 2.1 percent, but consumption and exports remained weak, saddling companies with huge inventories to work off.
Abe said he would look at the data when deciding whether to press ahead with a second increase in the sales tax to 10 percent next October, as part of a plan to curb Japan’s huge public debt, the worst among advanced nations.
“GDP figures for July-September turned out not so encouraging,” Abe said recently. “We are seizing a chance to exit long-lasting deflation and we cannot miss that chance.”
He added that he wanted to analyse the situation and make a decision on the tax.
Media had already said Abe could announce his decision to delay the hike for 18 months as early as today and state his intention to call an election for parliament’s lower house. Ruling party legislators expect the poll to be held on December 14.
An adviser to Abe termed the economic slide “shocking”, and urged the government to take steps to support the economy. “This is not a situation in which we should be debating an increase in the consumption tax,” Etsuro Honda, one of the architects of Abe’s reflationary policies, said.
Economy Minister Akira Amari said some economic stimulus was likely, but added it would be hard to craft an exceptionally big package because of the need for fiscal discipline.
No election for the lower house needs be held until late 2016, but political insiders say Abe wants to lock in his mandate while his ratings are relatively robust.
Next year he is expected to push ahead with unpopular policies such as restarting reac- tors that went offline after the Fukushima nuclear crisis and a shift away from Japan’s postwar pacifism.
Facing a divided and weak opposition, Abe’s Liberal Democratic Party (LDP) is expected to keep its majority in the lower house, but could lose seats.
A senior LDP legislator said he expected Abe to delay the tax hike and call a snap poll, arguing that his “Abenomics” strategy to re-energise the economy was working but needed more time. “The prime minister feels strongly that he wants to make certain of the economic trend so he will put off the sales tax rise from next October.”
But he added it was vital to recommit to a firm date for the rise in the levy, or risk upsetting investors worried about Japan’s debt, already more than twice the size of its economy.
The yen slipped on the poor GDP reading, with the dollar briefly pushing to a seven-year high above ¥117 (R11).
Sluggish growth and easing price pressures due to sliding global oil prices prompted the Bank of Japan to unexpectedly expand its massive monetary stimulus last month.
In the third quarter, the economy shrank 0.4 percent after a revised 1.9 percent decrease in April-June.. – Reuters