Japanese growth halved in third quarter
The rate of growth in Japan’s economy roughly halved between the second and the third quarters, the government reported on Thursday, as weaker consumption and exports offset big rises in public works spending and property investment. According to Cabinet Office estimates, the real value of goods and services produced by the world’s third-largest economy grew at an annualised rate of 1.9 per cent between July and September. That marked a deceleration from the stimulus-boosted first half, when all three engines – consumption, investment and exports – fired simultaneously to produce quarter-on-quarter growth of 4.3 per cent in the first three months and 3.8 per cent in the second. However, Japan still recorded growth above its potential level, which most economists estimate at between 0.5 per cent and 1 per cent. And many expect a pick-up in the current quarter and in the first three months of 2014, as households boost spending and investment before an increase in the rate of consumption tax, effective from next April. "A good cycle has begun," said Akira Amari, economy minister, in remarks to reporters. "It is important that domestic demand has made a steady contribution." The third-quarter slowdown is "little cause for concern," said Kazuhiko Ogata, chief economist at Crédit Agricole in Tokyo. "In the latter half of the fiscal year [to April 2014] we’ll probably see a lot of front-loaded spending before the tax increase, especially in residential construction activities and in big-ticket durable goods." Nonetheless, the data will sustain pressure on Shinzo Abe to keep Japan’s growth trajectory intact. Since returning to power last December, the prime minister has moved to overturn more than a decade of deflation through the "three arrows" of aggressive monetary easing, a more flexible approach to fiscal spending, and a series of overlapping initiatives to lift the country’s longer-term growth potential. Such efforts spurred the best rate of growth among the major G7 economies in the first half, as a fall in the yen pushed up stock prices and sharpened consumer appetites. Since then, however, policy makers have expressed concerns over a slowdown in external demand focused on China, Japan’s second biggest trading partner, and a softening of domestic demand amid higher prices for fuel and utilities. Data this week on machinery orders was weaker than expected, while consumer confidence in October fell to its lowest level since the aftermath of the 2011 earthquake, suggesting that the combination of rising prices and flat incomes is beginning to hurt. Thursday’s data showed that exports slipped 0.6 per cent from the previous quarter, while the rate of quarter-on-quarter growth in household consumption fell from 0.6 per cent to 0.1 per cent. Private residential investment picked up some of the slack, rising by 2.7 per cent. Attention is now likely to turn to the stimulative powers of the Bank of Japan, which has kept its monetary-policy settings on hold since announcing what insiders call a "180-degree turn" in April. Back then, Haruhiko Kuroda, BoJ governor, promised to buy enough bonds to double Japan’s monetary base within two years, to hit a 2 per cent target for inflation. On Wednesday, policy board member Ryuzo Miyao warned of headwinds from weak overseas growth, and stressed the BoJ’s readiness to supply further stimulus should a dip in the economy threaten the central bank’s upbeat forecasts. At the end of October the BoJ said that board members predicted real growth of 1.5 per cent in the next fiscal year. Private-sector forecasters, by contrast, expect growth of 0.7 per cent, as they are counting on a big drag on consumption following the tax increase. "The bank’s forecasts are very, very optimistic, well above market consensus," said Hiroshi Shiraishi, economist at BNP Paribas.