The nation’s economy expanded 0.5 percent in the April-June quarter, up for the first time in five quarters, on the back of strong performance by exports, government data showed Friday.
The Cabinet Office also released revised gross domestic product figures for the previous quarter showing no growth during the January-March term, down from a preliminary report of 1.4 percent growth.
Although the real April-June GDP rose at an annual rate of 1.9 percent, the data for the two quarters indicate economic recovery during the first six months of the calendar year was far weaker than previously thought, analysts said.
“Actual economic conditions were as we thought — more severe than the GDP figures showed,” said Heizo Takenaka, state minister in charge of economic and fiscal policy. “Risk factors on Japan’s recovery are increasing, and we need to make sure we grasp any vacillations that might affect the economy.”
In response to criticism that national GDP reports are tardy and inaccurate, the Cabinet Office decided to try to hasten its first preliminary report — starting with April-June figures — by including estimated data from both producers and consumers.
GDP measures the total value of goods and services produced within a nation’s borders.
Japanese manufacturers — especially exporters — pulled the economy forward in the April-June period, with exports growing 5.8 percent after showing 4.8 percent growth in the previous quarter.
However, the GDP figures confirmed that those increases have yet to reach the rest of the economy, where business investment and consumer spending remain stagnant.
However, Takenaka said he saw no need to revise the government’s forecast of no growth for fiscal 2002. “The figures do not call for a change in policy,” he said.
The economy’s utter dependence on exports is clouding the economic outlook, and many economists predict external demand will weaken as the end of the year approaches and that the global recovery will falter.
Indeed, Friday’s data show the economy has already begun to stall, according to Yasunari Ueno, chief market economist at Mizuho Securities Co.
“There is little hope that domestic demand will grow anytime soon,” Ueno said. “It will take considerable time, given global uncertainty, for corporate spending to expand and pull the economy forward.”
Friday’s data, which show the economy was far from robust in the first half, will put more pressure on the government to more vigorously implement stimulus measures, he noted, including tax cuts larger than those planned under Koizumi’s fiscal reform drive.
The numbers further show prices continuing to fall year-on-year, with the GDP deflator reflecting more than four years of consecutive drops since the April-June period of 1998. This could potentially increase the heat on the Bank of Japan to loosen monetary policy further. Some critics, for instance, have been urging the BOJ to commit itself to a specific inflation rate.
Short-term interest rates as well as those on deposits have already been shaved as close to zero as possible.
“One quarter of positive data makes it difficult for the government to say the economy is in a recovery,” Ueno said, “or that a recovery based on exports is sustainable.”
GDP review pending
The Cabinet Office will begin to revise its projection for fiscal 2002 gross domestic product growth in light of Friday’s release of GDP data for the April-June quarter, government sources said.
In addition, the Council on Economic and Fiscal Policy, a top policy panel advising Prime Minister Junichiro Koizumi, will discuss the appropriate scale of tax cuts for fiscal 2003 in view of the revised projection, to be submitted to the panel in September, the sources said.
The April-June GDP expanded a real 0.5 percent from the previous quarter, or an annualized 1.9 percent.
In December, the government forecast real GDP will not grow in fiscal 2002. The current fiscal year began April 1.
In January, the government released a report in which it predicted a real GDP expansion for fiscal 2003 of 0.6 percent.
The government will revise its own fiscal 2002 GDP growth projection in November or later. The Cabinet Office’s GDP estimate is distinct from an official government projection that the Cabinet must endorse.
Still, the Cabinet Office will present the revised projection to the council to help it draw up measures to promote economic recovery, they said.
Economic and Fiscal Policy Minister Heizo Takenaka has said he will give a tax cut proposal in September after examining the GDP figures for the April-June quarter.
The revision work is scheduled to start when the Finance Ministry is in preparation to compile a draft of the fiscal 2003 state budget covering government expenditures.
The Finance Ministry has been opposed to the Cabinet Office plan to revise the fiscal 2002 projection at an early date, fearing a downward revision would fuel calls within the ruling coalition for additional fiscal outlays to rev up the anemic economy.
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