Japan economy makes meek exit from recession
Feb. 16, 2015
TOKYO (AP) — After stumbling out of recession last quarter, Japan's economy looks set to do something familiar this year: slumber.
Helped by higher exports, the country's GDP grew an annualized 2.2 percent in the last quarter of 2014, the government said Monday. But the recovery from six months of contraction was weaker than forecast.
For all of 2014, the world's No. 3 economy stagnated, neither shrinking nor expanding as the recession, which was triggered by a sales tax hike in April, canceled out the growth that occurred at the beginning and end of the year. Wages, meanwhile, fell 0.1 percent.
Experts expect a similar performance for the economy this year despite the government and the Bank of Japan's herculean efforts to end two decades of malaise.
"The weakness in domestic demand supports our view that output will essentially be flat this year," Marcel Thieliant of Capital Economics said in a commentary.
The lackluster data highlight the challenges facing Prime Minister Shinzo Abe as he struggles to guide the country back to a sustainable level of growth, restore Japan's competitiveness and also fix the country's tattered finances.
The fragility of Japan's economy since the global financial crisis has done little to help global growth, though its imports from the rest of Asia are aiding Southeast Asian nations. In a recent report the World Bank attributed downward revisions in its global forecasts to weakness in Europe and Japan.
The bank forecast Japan's growth this year at less than 0.5 percent. Capital Economics' forecast is 0.1 percent.
Government spokesman Yoshihide Suga told a routine news conference that in light of the data, the government hopes for early passage of the annual budget to allow quick support measures.
"Recovery in consumer spending has been slow, household income is not keeping up with price increases and consumer sentiment is still at a low level," Suga said.
As its population ages and shrinks, Japan's demographic dividend from the post-World War II baby boom has shifted to a "demographic onus," according to Haruhiko Kuroda, who as the central bank governor carries much of the burden for making "Abenomics" work.
Other countries will soon follow Japan in facing the intractable combination of a shrinking and aging labor force and rising costs from a growing pool of retirees, he warned in a speech last year to the Bank for International Settlements.
Economists had mostly forecast growth at an annualized rate of about 4.0 percent for the last quarter, following two straight quarters of contraction after the sales tax rose on April 1 to 8 percent from 5 percent.
That half-year contraction prompted Prime Minister Shinzo Abe to push back until April 2017 a tax hike planned for October of this year.
Private, non-residential investment grew an anemic 0.4 percent in the October-December quarter, suggesting that businesses and households, which account for the lion's share of growth, remain cautious about spending.
"We are disappointed that the pace of pickup was weaker than expected," said Masamichi Adachi, an economist at JPMorgan Chase & Co. in Tokyo. "I'm surprised consumption was so timid. We had expected it to accelerate toward the end of the year."
The economy expanded 0.6 percent in October-December from the previous quarter.
Stronger demand in the U.S., Japan's largest export market, helped offset the impact of slower growth in China. Exports rose an annualized 11.4 percent in the last quarter.
But as a net oil exporter, U.S. growth is likely to moderate because of the recent plunge in crude oil prices,
"So this is critical to see a pickup of growth in Europe and Japan," Adachi said.
Abe has sought to foster growth through massive injections of cash into the economy, primarily through central bank asset purchases similar to those used in the U.S. under the Federal Reserve's quantitative easing policy.
The ultra-loose monetary policy is meant to spur inflation and keep credit costs low, countering years of deflationary stagnation. More than two years after Abe took office, Japan remains far short of the government and central bank's inflation target of 2 percent.
In a major policy speech last week, Abe vowed to push through the biggest reforms in Japan since World War II, reiterating pledges for sweeping reforms of the government bureaucracy, labor regulations and other policies to catalyze growth.
"Now is the time. Through our efforts, Japan can achieve growth once again," he said.
Sustained growth will depend both on global trends and on whether consumer spending can regain momentum. Abe and other leaders are pushing corporations to raise wages in this year's spring labor negotiations to help boost consumer demand.
Last year major corporations such as Toyota Motor Corp. gave the largest wage increases in years. Part-time workers have likewise seen some increases. But overall incomes have not risen.
The more than 60 percent plunge in oil prices since June is cooling inflation around the globe, but is also seen as a plus for consumer spending since lower costs for gas and other energy can mean more spending in other areas.
Associated Press writer Mari Yamaguchi contributed.
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