Weak spend stalls Japan growth at 1%
tokyo — Japan’s economy expanded at a steadily slowing pace in 2016, though a modest recovery in exports helped offset sluggish spending by households and businesses, according to data reported on Monday.
The one per cent annual pace of expansion for the year compared with 1.2 per cent growth in 2015. For all but one quarter of the year, private demand was flat or negative. And quarterly growth slowed to 0.2 per cent in October-December, down from 0.6 per cent in January-March.
The preliminary data released by the Cabinet office could be revised upward. But, the report showed the challenges Japan’s planners are facing in trying to rekindle growth without much help from corporate investment or wage increases.
The good news
2016 was the first year that Japan saw no quarter-to-quarter contractions in over a decade. Corporate investment rose 3.8 per cent from a year earlier in the last quarter, and the net gain from trade rose 5.4 per cent. A recent weakening of the Japanese yen against the US dollar, from about 100 yen in the summer to about 114 yen per dollar now, is helping corporate profits and exports.
Not-so-good news
Real wages were flat in OctoberDecember, a main period for customary twice-annual bonuses. Household spending slipped 0.1 per cent. For the year, private demand rose 0.4 per cent, down sharply from 2015. Manufacturers have been slow to invest or raise wages, and consumer demand has remained tepid. Meanwhile, a weak yen tends to push prices for imported food and other items higher, further discouraging spending.
The outlook
A mild recovery in China has helped boost demand for shipments of machinery and other industrial inputs from Japan. The usual boost from increased government spending at the beginning of the April-March fiscal year will also likely sustain growth in coming months. But with President Donald Trump threatening to raise tariffs to rebalance the US trade deficit, “the increased dependence on exports to keep real GDP growth in positive territory is a concern given the growing risk of global trade tensions,” BMI Research said in a report on Monday. It forecast that growth would slow to 0.8 per cent in 2017.
In the long run
Japan’s population is shrinking and rapidly ageing, so businesses are opting to expand in faster growing overseas markets rather than at home.
Meanwhile, real disposable incomes have stagnated for the past three decades, while near-zero interest rates mean Japanese pensioners lose money on the nest eggs they rely on to survive retirement. Progress on promised sweeping reforms of labour laws and other regulations to make the economy more competitive has been slow.
“The government needs to accelerate reforms, including changes to pension and tax systems, as well as labour rules to reduce obstacles to sustainable growth,” Harumi Taguchi of IHS Global Insight said.
Given consumption is much the largest part of total demand, it will be hard for Japan to sustain the kind of expansion it needs to create a virtuous cycle of rising wages, rising consumption and rising prices. — AP