Japan Growth Misses Expectations In Second Quarter
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Japan’s economy expanded at a slower pace than most analysts expected in the second quarter, raising questions about whether Tokyo will push ahead with a sales tax hike to bring its rapidly-increasing debt under control.
Gross domestic product expanded at an annualised rate of 2.6 percent, a preliminary government estimate showed on Monday, continuing a third straight quarter of expansion in Asia’s second largest economy.
Japan’s economy expanded at a slower pace than most analysts expected in the second quarter, raising questions about whether Tokyo will push ahead with a sales tax hike to bring its rapidly-increasing debt under control.
Gross domestic product expanded at an annualised rate of 2.6 percent, a preliminary government estimate showed on Monday, continuing a third straight quarter of expansion in Asia’s second largest economy.
Despite being more than twice as fast as Japan’s average growth over the last decade, Monday’s results were less robust than the previous quarter’s annualised 4.1 percent and a full percentage point slower than the average forecast of economists surveyed by news agencies.
“Private consumption came out stronger than expected but capital spending and inventory disappointed,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“The results show that ‘Abenomics’ has succeeded in boosting consumer sentiment and spending but it has yet to encourage companies to spend more and raise wages. As such, it remains unclear if growth could be sustained in the long run.”
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Japan’s Prime Minister, Shinzo Abe, has been attempting to lead Japan out of a more than 15-year period of deflation. His brand of economic policies, dubbed Abenomics, include boosting the supply of money in the economy and raising government spending.
So far those moves have helped to weaken the yen and boost profits for Japan’s exporters, but many worry if Abe would be able to implement meaningful and crucial structural reforms.
As part of efforts to curb its mounting debt, Japan is due to raise its 5 percent sales tax rate to 8 percent next April and then to 10 percent in October 2015.
Proponents of the tax hike, including Japan’s central bank and the International Monetary Fund, argue the levy is essential to curb mounting public debt – worth more than the size of the Chinese economy – and prevent a loss of confidence in Japanese bonds.
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“Growth above 2 percent is still considered high, so it wouldn’t lead to a complete postponement of the sales tax hike. But the government could make tax hikes more incremental, without delaying the timing,” said Minami.
But the slip in Q2 may weaken the case for a tax hike, as critics fear it could dampen spending and tip the country back into recession.
Abe has the authority to delay the tax hike, which was approved by parliament last year, if he deems that the economy is not strong enough to handle it. He had not made clear what standard he will use to make that judgment, but some analysts suggest that growth of 3 percent or more would be a prerequisite.
