• Kyodo

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The economy grew at a weaker-than-expected annualized rate of 1.4 percent in the April-June quarter as consumption slowed, fueling expectations for an emergency budget and additional monetary easing to underpin growth.

The result, released by the Cabinet Office on Monday, is much weaker than the 5.5 percent rate logged in January-March. Economists expected second-quarter gross domestic product to expand by an average real, or inflation-adjusted, 2.2 percent from the previous quarter in a Kyodo News survey.

Analysts warned of a further slowdown in the second half of the year as domestic demand linked to reconstruction in the March 2011 disaster zone begins to falter as the gloomy outlook for the global economy continues to weigh on exporters already hurt by the strong yen.

The government is expected to start work on an extra budget for the current year to finance additional stimulus measures, while growth concerns could add to political pressure on the Bank of Japan to further ease monetary policy to boost the world’s third-biggest economy.

The government was cautiously optimistic.

The economy “continued to mark strong growth” and will “keep recovering moderately” on improving business and employment conditions, economic and fiscal policy minister Motohisa Furukawa told reporters. But he also said there are downside risks amid the global economic slump because of the sovereign debt crisis in Europe.

The April-June data corresponded to a nonannualized rise of 0.3 percent, marking a fourth consecutive quarter of growth as business and housing investment turned upward, the Cabinet Office said in the preliminary report.

The GDP rate was below the average forecast of 0.6 percent.

Consumer spending, which makes up about 60 percent of GDP, or the total value of goods and services produced domestically, became tamer, edging up just 0.1 percent, compared with 1.2 percent the previous quarter.

Spending on durable goods remained robust overall, but car sales, which had been supported by the fiscal stimulus, made a smaller contribution as the effects of a state-backed subsidy program for buying environmentally friendly vehicles diminshed, the Cabinet Office said.

Exports of goods and services rose 1.2 percent, while imports grew 1.6 percent, signaling continued deterioration in the trade balance amid growing fuel imports for thermal power generation to cover the loss of nearly all atomic power from the reactor shutdowns triggered by the Fukushima nuclear crisis.

Domestic demand pushed GDP higher by 0.4 point, while external demand, or net exports, trimmed it by 0.1 point.

“The latest GDP data suggest that the Japanese economy will pause in the second half of the year after staging a high level of growth in the first half,” said Hiromichi Shirakawa, chief economist at Credit Suisse Securities (Japan) Ltd., who projects the economy willcontract around 1 percent in the July-September period.

“The government and the BOJ seem closer to deciding to downgrade their economic assessments. It appears that the BOJ is about to be forced to somehow implement additional monetary easing . . . while it is possible the government will put priority on creating an extra budget,” said Shirakawa. Mitsumaru Kumagai, chief economist at Daiwa Institute of Research, echoed the view that there will be a weaker showing in the third quarter.

“Taking into account a slowdown in private consumption, which had led the recovery in the economy, we must say it is more likely that real GDP growth will become slower in the July-September period,” Kumagai said in his report.

During the second quarter, corporate capital spending, an indicator for business sentiment in the future, turned upward, rising 1.5 percent due largely to gains in the construction sector, which has benefited from accelerated reconstruction work in the Tohoku region from the quake and tsunami.

Public spending also grew on disaster-linked needs, rising 1.7 percent.

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