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The economy will return to a growth path in the July-September quarter after a sharp plunge in the April-June quarter that think tank analysts have linked to the consumption tax increase in April.

But the effects of the tax increase will linger, forcing the pace of recovery to a crawl, they predict.

Five selected think tanks all predict that the real growth rate for the April-June quarter will be poor, with the annualized rate falling into a range from minus 5.5 percent to minus 9.2 percent. For the July-September quarter, four of the five institutes foresee positive growth ranging from 1.5 to 5.7 percent. The remaining one predicts a rate of minus 0.4 percent.

The official preliminary figures for growth in gross domestic product for April-June are expected to be released next week by the Economic Planning Agency.

The dismal projections for the April to June quarter stem primarily from to the consumption tax increase. According to Kazutaka Kirishima, chief economist of Sumitomo Life Research Institute, the sluggish consumption rate resulted from more than just the shopping rush before taxes went up.

Kazutaka said consumer anticipation of another tax increase in the future and increased health insurance contributions added to that sentiment. The end of special income and residential tax breaks — totaling 2 trillion yen annually — also helped hold down consumption, he added.

Hisashi Yamada, a senior economist at the Japan Research Institute, said the last-minute consumption demand was unexpectedly high. It accounted for 0.5 percent of the total personal consumption, compared with 0.2 percent during a corresponding period in early 1989, when the consumption tax itself was introduced.

The repercussions for April-June personal consumption represented an annualized 20 percent drop from the previous quarter, he said. Sales of durable consumer goods swelled in March, just before the consumption tax rose from 3 percent to 5 percent. Furniture sales went up 41 percent from a year earlier, sales of household electric appliances soared 43 percent, and those of new passenger cars increased 14 percent.

In reaction, sales of these goods since April have remained lower than the previous year, with double-digit decreases for some goods. Also lower is consumer purchasing power. Fuji Research Institute estimates that if new prices fully reflect the tax increase of two percentage points, the number of new passenger cars sold for the fiscal year 1997, which ends next March, will be 232,000 lower than without a tax increase.

Public investment will be positive for the first half of fiscal 1997 as the supplementary budget of February 1996 begins to produce effects, but the level is not significantly high, Yamada said.

He said the contribution of external demand to growth for the April-June quarter was considerably high, posting an annualized rate of 3 percentage points. This is because of the decrease in external demand in the preceding quarter, when manufacturers placed priority on the domestic market over foreign markets in order to meet the rush purchases here.

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