The economy grew 0.5 percent in fiscal 1999 from the year before, recovering from negative growth logged for the preceding two years but slightly falling short of the government target of 0.6 percent growth for fiscal 1999, the Economic Planning Agency said Friday.
The year-on-year growth came as the EPA announced that the figures for the January-March period, in which the gross domestic product grew a real 2.4 percent — or an annualized 10 percent — compared with the previous quarter, following two consecutive quarters of shrinkage.
The quarter-to-quarter growth was the best since the 2.6 percent for the January-March period of 1996. Driving the rise was private consumption, which grew 1.8 percent, and private-sector spending on plants and equipment, which was up 4.2 percent.
Private-housing investment also recovered from two consecutive terms of negative growth, marking a 6.6 percent jump.
While some observers said the government will be held responsible for missing its growth target, EPA Chief Taichi Sakaiya defended the results. He said that the figure is reasonable considering the nation’s economic straits in December 1998, when the government first released its GDP growth target for fiscal 1999.
“At that time, of the nation’s 40-some think tanks, only one predicted 0.2 growth, and another said the economic growth would be zero percent. All the rest had said the economy would shrink,” Sakaiya told a news conference. “Although small in scale, the positive growth proves that policies taken by the (late Prime Minister Keizo Obuchi’s) administration were not wrong.”
Sakaiya added, however, that the economy is still in a severe situation, and cautioned against calls for significantly cutting back on public-works spending.
Overall, domestic demand contributed 1.5 percent, while external demand contributed 0.9 percent.
Total January-March GDP came to an annualized 486.09 trillion yen in real terms, compared with 474.67 trillion yen for the October-December term.
Friday’s announcement was overshadowed by a recent controversy over the credibility of the GDP statistics. Late last month, the agency announced it will lower its GDP data for the October-December period, following a New York Times report that the EPA had not taken into account some unfavorable data when compiling the figure.
The latest figures also raised the brows of Kazuhiko Ogata, chief economist at ABM Amro Securities Japan. A steep 7.5 percent decline in public works spending for the January-March quarter “strikes me as very odd,” Ogata said.
“If I read more into this, it almost looks as if the EPA made the figure small to pave the way for more public works spending, which is good news for Liberal Democratic Party politicians facing a general election,” Ogata said. He added that the figure could also be interpreted as pressure against the BOJ to abandon its zero-interest rate policy.
The sharp decline in public works investments also shocked Akio Makabe, chief economist at Dai-Ichi Kangyo Research Institute.
“My first impression was, ‘Is it true?’ ” Makabe said. “I had personally thought the growth for the January-March quarter would surpass 3 percent. This fall in public works spending pulled the GDP growth down.”
Since the GDP growth was slightly smaller than expected, there is a growing market sentiment that an imminent end to the zero-rate-policy is unlikely, Makabe added.
Sakaiya also warned against the abandonment of the BOJ’s zero-rate policy, which the central bank is seen to be preparing for.
The BOJ has publicly said it will examine the progress in income conditions in judging whether to abandon the 16-month-old policy of steering the unsecured overnight money rate to near zero.
While Friday’s EPA data say employment income has gone up a real 1.2 percent during the January-March period, Sakaiya said that data alone should not prompt the BOJ to raise rates.
The BOJ says that it will continue the zero-rate policy “until the threat of deflation is dispelled.”
The government does not need to change its economic policy because of gross domestic product data for the January-March quarter, Finance Minister Kiichi Miyazawa said Friday.
Whether a supplementary budget is necessary to boost the economy should be judged when the April-June figures are released in September, Miyazawa told a regular news conference.
“Our position remains unchanged, that fiscal policy for the latter half of this fiscal year should be determined after learning the April-June data,” he said.
The 0.5 percent growth seen in fiscal 1999 was “good enough, if not very good,” he noted.
Taichi Sakaiya, head of the Economic Planning Agency, also reserved his judgment about the need for an extra budget.
“I cannot answer until a more accurate, recent picture of the (economic) situation is available,” Sakaiya said.
Timing for a budget decision may come in September or earlier, he said.
A supplementary budget, if any, should focus on projects in the areas of information technology, the environment and the aging of society, he indicated.
On the Bank of Japan’s monetary policy, Sakaiya said it is still premature for the bank to lift its ultra-easy zero-interest rate policy, because deflationary risks have not disappeared.
He pointed out that prices were falling despite some improvements in workers’ income and corporate profits.