TOKYO – Japan’s economy expanded at a slower-than-expected 1 per cent annualized rate in the last quarter of 2013, as consumer demand failed to offset weaker exports and public spending.
The data released Monday showed a 0.3 per cent expansion for the world’s third largest economy from the previous quarter, adjusted for inflation. That was less than half of some forecasts despite a boom in housing construction and stronger public and private spending.
Slower growth in China and other major markets has taken a toll on exports, which cut 0.5 percentage points off growth at a critical time for Prime Minister Shinzo Abe’s recovery program.
The preliminary data show the economy grew an estimated 1.6 per cent in 2013, the Cabinet Office reported. That was only slightly stronger than the 1.4 per cent expansion in 2012.
It was the fourth straight quarter of expansion since the economy emerged from recession in late 2012, and gained momentum on a combination of strong government spending and aggressive monetary easing.
The Bank of Japan’s monthly monetary policy meeting begins Monday. Ahead of the release of the latest data, the central bank was expected to keep monetary policy unchanged, while promising more action if necessary to cushion the blow to consumer and corporate demand from a 3 per cent sales tax hike that takes effect April 1.
Many economists expect the central bank to stand pat for now as price increases and growth continue, though at a slower pace than desired.
“To be sure, we expect further policy easing later this year, but not on a Q4 GDP trigger,” Mizuho Bank said in a commentary Monday.
The government has already promised 5.5 trillion yen ($54.2 billion) in fresh stimulus.
Private residential spending rose nearly 18 per cent from a year earlier in October-December and nearly 9 per cent for the year. Economists expect the tax hike to cause the economy to contract in April-June after expanding in this quarter, as consumers move up purchases to beat the tax hike and then tighten their belts afterward to compensate for higher costs.
A telephone survey by the Mainichi newspaper showed 65 of those asked plan to cut spending after the tax hike.
Japan’s consumer price index rose 0.4 per cent in 2013, the first increase in five years, but after a strong start growth slowed later in the year as corporate investment remained sluggish and exports were sapped by lacklustre growth in emerging economies.
The weakening of the yen that accompanied monetary easing increased demand for imports faster than it may have helped exports, pushing Japan’s trade balance into the red.
Other recent data have been mixed.
Corporate demand for bank loans has risen moderately, climbing 2.1 per cent increase in 2013 from the year before, compared an average annual decline of 1.5 per cent in 2000-2012.
But so far, companies appear to be focusing much of their investment on overseas markets.
Machinery orders, a major trend setter for corporate spending, fell 3.1 per cent month-on-month in December, with core private sector orders dropping 15.2 per cent, the biggest plunge since the government began its current data series in 2005.
“The sharp fall in machinery orders in December casts doubt on whether the fledgling recovery in business investment will continue,” said Capital Economics economist Marcel Thieliant. “Overall investment is set to weaken in coming months as housing construction will likely fall sharply after the consumption tax hike in April.”