TOKYO – Japan economy escaped recession but grew less than earlier estimated as demand and wages remained weak, the government said Monday.
The world’s third-largest economy is still recovering from the blow to consumer and business spending from a sales tax hike on April 1, 2014. Purchases plunged after surging to beat that increase.
The revision puts inflation-adjusted growth for the year flat at exactly 0.0 per cent, compared with 1.6 per cent in 2013 and 1.8 per cent in 2012.
The government earlier reported that the economy grew at a 2.2 per cent annual rate in the final quarter of 2014 after contracting 6.4 per cent in April-June and 2.6 per cent in July-September.
Monday’s revision reflects downward inventory adjustments, lower private demand and flat-lining corporate and residential investment. It also showed a slight drop in incomes.
More recent data have shown a recovery in exports and increased orders of machinery — vital drivers for growth, and both the government and central bank say the economy is still in the midst of a moderate recovery.
“The economy is growing. Wages are growing. Only the shock of untimely consumption taxes is hampering growth,” Koichi Hamada, a Yale University economist and adviser to Prime Minister Shinzo Abe, told reporters last week.
“There is a rosy future for the Japanese economy,” Hamada said.
The central bank is spending trillions of yen (tens of billions of dollars) a month on asset purchases, seeking to spur inflation and end once and for all chronic deflation that Hamada and some other economists say is slowing growth.
As the U.S. wraps up its era of so-called “quantitative easing,” Europe and Japan are still counting on it to help catalyze growth.
But falling oil prices and relatively weak domestic demand have slowed Japan’s progress toward its goal of a 2 per cent inflation rate.
Extreme monetary easing has been the linchpin of the “Abenomics” economic revival strategy, along with strong government spending and sweeping reforms.
Progress in those areas has also been modest, with government spending rising 0.1 per cent in the last quarter from the year before.
The massive injections of cash into the economy have pushed the value of the Japanese yen lower, raising import costs but also yielding a windfall for big Japanese corporations that earn much of their profit overseas.
Abe has been urging business leaders to put more of their record earnings into raising wages, to help support consumer demand. So far, most increases have come in the form of bonuses, while increases in base wages for the majority of workers employed by smaller companies have lagged inflation.
Anxiety over job insecurity and stretched incomes is a problem seen in many industrial economies, Nobel Prize winning economist Robert Shiller of Yale said at a recent news conference in Tokyo.
Shiller praised Abe for seeking to inspire more confidence, and for pledging to shake up stagnant industries and cut through bureaucratic red tape that many in Japan view as a major hindrance.
But the impasse over spending remains a challenge in Japan and elsewhere, he said.
“People are worried and the result of the worrying is they don’t want to spend much,” Shiller said. “There’s no easy cure for these psychological fluctuations.”