GDP shrinks but less than first reported

Kyodo

The economy shrank an annualized real 0.7 percent in the October to December quarter, milder than the 2.3 percent contraction initially reported due to stronger-than-expected capital investment, the Cabinet Office said Thursday.

But the revised gross domestic product figures confirmed that the economy has now contracted in four of the last five quarters, amid the soaring yen’s negative impact on exports, the European sovereign debt crisis and last year’s flooding in Thailand that hit local Japanese plants.

Firm domestic demand mitigated the decline in GDP, including corporate investment related to postdisaster reconstruction in Tohoku, according to the Cabinet Office’s survey, which incorporated newly available data.

Hiroshi Ogushi, parliamentary secretary at the Cabinet Office, said developments overseas, such as Europe’s economic slowdown and the massive Thai floods that disrupted Japanese manufacturers’ supply chains, were the main factors weighing on the economy. But he pointed to positive signs on the domestic front, such as a continuing recovery in the manufacturing sector.

“We think there is no need to change our current assessment that the economy is continuing to pick up,” he said at a news conference.

The annualized GDP figure corresponds to a 0.2 percent drop from the July to September quarter, less than the 0.6 percent contraction reported a month ago.

Capital investment that expanded 4.8 percent from the previous quarter, far higher than the initially reported 1.9 percent rise, significantly contributed to the upward revision, the Cabinet Office survey showed.

Consumer spending, which accounts for about 60 percent of Japan’s GDP, rose a revised 0.4 percent, up from 0.3 percent, as sales of durable goods proved stronger than initially reported, especially televisions.

Public investment fell 2.2 percent, against the drop of 2.5 percent reported earlier.

Exports shrank 3.1 percent while imports gained 1.0 percent, both unchanged from the preliminary figures.

Mitsumaru Kumagai, senior economist at Daiwa Institute of Research Ltd., expects the economy to return to a mild recovery track soon, supported by government stimulus measures, such as subsidies for buying energy-efficient cars, as well as an expected reversal of the yen’s rise following the Bank of Japan’s announcement of a de facto inflation target.