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Business News/ Politics / Policy/  Japan’s growth slows, signals global recovery cooling
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Japan’s growth slows, signals global recovery cooling

Japan’s growth slows, signals global recovery cooling

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Tokyo: Japan’s economy grew at a much weaker than expected pace and was overshadowed by China in the second quarter, data showed Monday, amid further signs the global recovery is losing steam.

With cooling exports and flat domestic consumption hitting Japan’s growth in April-June, the data missed market estimates and pointed to the looming prospect of China overtaking Japan as the world’s second-largest economy.

Japan slipped behind its Asian rival in the second quarter on nominal terms, government data showed, while remaining just ahead of China in the first half.

“The economy is levelling off," said Keisuke Tsumura, parliamentary secretary of the Cabinet Office.

Japan’s real gross domestic product grew by an annualized 0.4% in the quarter, down from a revised 4.4% in the previous three months and missing forecasts of 2.3% growth from a Dow Jones Newswires poll of economists.

On a quarterly basis, growth was at 0.1%, down from a revised 1.1% in the previous quarter.

“It was a negative surprise," said Yoshiki Shinke, Dai-Ichi Life Research Institute senior economist. “Such figures were very much unexpectedly weak."

The figures pose a challenge for Prime Minister Naoto Kan’s government, which must balance a fragile economy with an agenda focused on the need to cut the industrialized world’s biggest public debt, at nearly 200% of GDP.

“With the government currently focused on fiscal reconstruction, the chances of additional fiscal spending are declining sharply," said Goldman Sachs economist Chiwoong Lee.

Private consumption, a key driver of the economy, was flat after growing 0.5% in the previous quarter.

Net exports contributed to 0.3% of GDP from 0.6% previously.

Many analysts say 2010 is the year China will replace Japan as the world’s second-largest economy, with government data showing that while Japan stayed ahead of its Asian rival in the first half, it fell behind in April-June.

On a nominal basis, Japan’s second quarter GDP was smaller than China’s, at $1.288 trillion compared with $1.336 trillion, according to the government.

However, Japan’s gross domestic product was at $2.578 trillion compared to China’s $2.532 trillion in the first half, the cabinet office said in a preliminary estimate.

Both China’s commerce ministry and the National Bureau of Statistics declined to comment.

In June, Japan’s unemployment rate edged higher to 5.3%, while production of automobiles and electronic gadgets surprisingly slip, amid signs that an export-driven recovery may be stalling.

Shipments of cars, gadgets and components have been crucial in offsetting weaker demand at home, but concern is mounting that Japan may be hit by Beijing’s efforts to cool China’s economy, as well as fragile euro zone and US demand.

Deflation and weak domestic demand have long burdened Japan, as consumers tend to put off purchases in the hope of further price falls.

The planned expiry in September of government incentives to purchase cars may also weigh on production for the domestic market just as the overseas climate worsens, analysts say.

Japan’s exporters are threatened by a slowdown overseas, cooling a sector that is also anxious about the strength of the yen, which recently touched a 15-year high against the US dollar.

The safe-haven currency has strengthened beyond the trading levels assumed earlier by many exporters who have eyed its rise with anxiety, as investors seek a refuge from dollar and euro volatility.

For every one-yen rise in the currency’s value against the dollar, companies can lose tens of billions of yen earned overseas when repatriated, threatening a core part of Japan’s economy.

“It will take time for the higher yen’s effects to show in exports data," said Shinke. “But over six months to a year, it will pressure exports."

In Tokyo the Nikkei 225 index was 0.90% lower in afternoon trade.

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Published: 16 Aug 2010, 12:39 PM IST
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