Japan’s economy emerges from recession, but growth weaker than forecast

AFP-JIJI, Reuters, Bloomberg

The economy rebounded from recession to grow 0.6 percent in the final quarter of 2014, the government said on Monday, giving a much-needed boost to Prime Minister Shinzo Abe’s efforts to shake off decades of economic stagnation amid a deteriorating global outlook.

The expansion was less than economists estimated in the fourth quarter, underlining the difficulty in stoking growth while export gains are undermined by weak investment and consumption at home.

Gross domestic product grew at an annualized 2.2 percent in the three months ended Dec. 31, the Cabinet Office said on Monday. The median projection of analysts surveyed by Bloomberg News was for a 3.7 percent increase.

The quarterly figures for the three months between October and December also came in below the median forecast of 0.9 percent growth in a survey published by the Nikkei economic daily.

Over the full year, the data showed a flat 0 percent growth rate for 2014, following a 1.6 percent expansion in 2013. Finalized figures are expected to be released in the following weeks.

Economy minister Akira Amari on Monday said employment and income conditions may continue to improve, and that conditions are falling into place for the economy to grow further. But that hinges on increased corporate profits translating to higher pay for workers, he said.

The softness of the rebound highlights the challenge facing Abe as he attempts to revive the world’s third-largest economy. Wage rises and increased consumer spending are likely to be pivotal this year to spur activity beyond exports, where the lower yen has contributed to surging profits at companies like Toyota Motor Corp.

“Japan has clawed its way out of recession but we are looking for a modest acceleration in growth,” Izumi Devalier, an economist at HSBC Holdings PLC in Hong Kong, said on Bloomberg TV. “This is not the picture of an economy that has a lot of spark behind it.”

The yen has weakened about 28 percent against the dollar since Abe took power in December 2012, helping boost exporters’ earnings while increasing import costs and bruising consumer sentiment.

The economy contracted for the second straight quarter between July and September as consumer spending dropped sharply following April’s sales tax hike to 8 percent from 5 percent, a move aimed at shrinking the country’s massive national debt.

The fall into recession dented Abe’s pro-spending growth bid, dubbed “Abenomics,” which boosted stock prices and pushed the yen down, aiding the nation’s exporters.

But the hike in the sales tax — the first sales tax rise in 17 years — slammed the brakes on consumer spending, plunging the economy into recession and throwing the success of Abenomics into question.

Tax rises have put Abe in a tricky position as he tries to balance them with his growth plan.