The nation’s economy in the April-June quarter suffered its biggest setback in 23 years, hit by a drop in personal spending following the April 1 consumption tax hike, the Economic Planning Agency said Sept. 11.
Gross domestic product shrank at an annualized rate of 11.2 percent in real terms from the previous quarter, the EPA said.
The dismal figure not only surprised many analysts but EPA Vice Minister Shinpei Nukaya, who said “the negative growth rate was far larger than initially anticipated.”
However, Nukaya stressed that although repercussions from the rush to buy before the tax hike may linger through the July-September period, the economy remains on a moderate recovery course.
Private consumption fell an annualized 21 percent, residential investment was minus 38.6 percent and corporate investment slid 5.8 percent in real terms, the EPA said in a preliminary report.
The EPA said the primary force behind the economy’s drop was the fall in private consumption, such as of durable goods including cars, following a buying boom ahead of the consumption tax increase from three percent to five percent April 1. The last-minute demand was estimated at 2 trillion yen, with demand dropping in the April-June period, the report says.
Nukaya said lingering effects are expected to end with the July-September period.
Housing construction continued falling in the April-June period. Corporate investment turned negative for the first time in 30 months, Nukaya said, adding that the lag is temporary as firms were cautious with the tax hike. Investment will pick up in the July-September quarter or later, Nukaya said. “It is inadequate to conclude that the increasing trend has changed.”
Exports, including those of automobiles and precision instruments, soared by an annualized 28 percent during the April-June quarter against a weakened yen and brisk U.S. economy. Imports of items such as cars and food declined 7.6 percent.
Net exports boosted growth by 1 percentage point, but sluggish demand yanked it down 4 percentage points, resulting in negative GDP growth of 2.9 percent, or an annualized rate of minus 11.2 percent. The ratio of current account surplus against the GDP increased to 2.6 percent from 1.5 percent in the January-March quarter. However, the ratio is likely to shrink in the months ahead, Nukaya said.
Public investment increased 17.2 percent, posting the first positive growth in a year. Government consumption decreased 5 percent.
GDP — the total value of goods and services produced in Japan — came to an annualized real-term value of 474.2 trillion yen in the April-June period. The GDP deflator, which measures the increase in the average price of products in the GDP, rose 1.1 percent from a year earlier, due mainly to the tax hike.