Business / Economy

April retail sales disappoint as consumption tax weighs

Bloomberg

Retail sales rose less than forecast in April, signaling a weak start to the second quarter for an economy that is still weighed down by last year’s sales-tax increase.

Sales climbed 0.4 percent from March, when they dropped 1.8 percent, government data released Thursday showed. Economists had forecast a gain of 1.1 percent. Sales jumped 5 percent from April last year, when the first bump in the levy since 1997 hurt spending.

Prime Minister Shinzo Abe is trying to sustain a recovery from a recession last year that was triggered by the tax hike. The government is counting on companies to boost wages to support consumption, as policymakers gird for another hike in the books — still to be approved by Abe — in 2017.

“There are good reasons to be concerned about the outlook for consumer spending,” Marcel Thieliant, an economist at Capital Economics, wrote in a note. Wage growth is likely remain sluggish in coming months, “constraining the recovery in private consumption,” he said.

Demand for high-priced durable goods has not recovered to levels seen before the sales levy increase, according to Ministry of Economy, Trade and Industry. It maintained its view that retail sales remain flat, with weakness in some areas.

Economic growth is forecast to slow to an annualized 2.1 percent in the second quarter from expansion of 2.4 percent in the first quarter. The strength last quarter was fueled partly by inventory buildup, which may constrain production in coming months.

The Abe administration is balancing policies to revive the world’s third-biggest economy and efforts to curb the world’s heaviest debt burden. Officials are aiming to produce a plan next month that would map out a path to narrowing the budget deficit.

Abe last year delayed another increase in the sales tax that was slated to complete its doubling to 10 percent this October, until April 2017.

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