- Oct-Dec GDP +0.1% Annualized vs. Forecast +0.8%
- GDP growth slower than originally forecast +0.6%
- Consumption revised downward to +0.3%, capex flat at -0.5%
- Weak consumption, clouds in business fixed investment Wage hike-led recovery prospects
TOKYO (Reuters) – Japan’s economy narrowly avoided a recession in the final months of 2022, contracting in the third quarter before barely growing on weak consumption, it showed.
Record-high inflation and slowing global growth for world’s third-largest economy amid significant monetary tightening in many countries despite easing COVID controls, energy subsidies and ultra-accommodative monetary policy is undermining the post-pandemic resurgence of
Businesses under pressure from the government to raise wages to boost household consumption are scrambling to find momentum in the face of weak demand during the crucial spring labor negotiations.
Japan’s Gross Domestic Product (GDP) expanded at an annualized rate of 0.1% from October to December. This is against preliminary estimates of a 0.6% expansion, well below the median forecast of a 0.8% rise in economists surveyed by Reuters. This followed a revised contraction of 1.1% from July to September.
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Data released by the Cabinet Office showed the expansion broadly flat quarter-on-quarter at 0.02% change, while preliminary figures and economists’ forecasts showed growth of 0.2%.
Wakaba Kobayashi, an economist at the Daiwa Institute of Research, said, “While rising inflation likely held back consumption, the recovery in services (consumption) was not as strong.
Private consumption, which accounts for more than half of the country’s GDP, increased by 0.3%, down from initial estimates of a 0.5% increase.
The data showed that spending on services and goods such as restaurants and hotels was less robust than previous estimates.
Capital spending fell 0.5%, even though last week’s Treasury data showed manufacturers’ capacity gains in the fourth quarter.
Domestic demand as a whole fell by 0.3 percentage points from the revised GDP growth rate, slightly above initial forecasts, while net exports increased by 0.4 percentage points.
Japan’s economy has been hit by slowing overseas demand due to the slowing global economy, resulting in a record trade deficit and the biggest contraction in factory output in eight months in January.
Domestic demand has provided some support for the economy, thanks to the relaxation of Japan’s COVID-19 measures, including easing border controls for international tourists in October, but the highest inflation in 40 years is likely to undermine a consumption-led recovery. It is below forecast.
To boost households’ purchasing power, the government and the Bank of Japan (BOJ) are urging companies to raise workers’ wages during the annual spring wage negotiations.
Major firms set to deliver biggest wage hikes in 26 years, likely to include just a 1% increase in base salaries, and sustained wage growth that central banks see as key to achieving steady growth Questions have been cast as to whether Japan will be able to achieve the rise. Its his 2% inflation target.
The Bank of Japan plans to maintain its ultra-accommodative policy in a two-day interest rate review that ends Friday, the end of Governor Haruhiko Kuroda’s 10-year term.
The government is considering additional measures to combat inflation following the $285 billion fiscal package announced in October, subsidizing gas and utility bills.
But weak GDP data and challenges abroad point to a bumpy road to Japan’s recovery, analysts say.
“Japan’s October-December quarter ended with zero growth, dashing hopes of a recovery from the July-September contraction,” said Nambu, chief economist at The Norinchukin Bank.
“Economic conditions will remain challenging in April and beyond, with relentless monetary tightening increasing the risk of growth stalling in Europe and North America,” he said.
Reports by Kantaro Komiya and Hidemi Yamamitsu. Graphics by Pasit Kongkunakornkul. Edited by Chang-Ran Kim & Shri Navaratnam
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