Japan GDP contraction larger than first estimated

AP News
Posted: Dec 07, 2014 9:36 PM
Japan GDP contraction larger than first estimated

TOKYO (AP) — The contraction in Japan's economy last quarter was larger than initially estimated, according to figures released Monday that confirmed a recession ahead of an election on Sunday.

The world's third-biggest economy shrank an annualized 1.9 percent in the July-September quarter compared with the initial estimate of a 1.6 percent contraction. Business and public spending were weaker. In the April-June quarter, the economy dived 7.3 percent.

A sales tax hike to 8 percent from 5 percent on April 1 is the main reason why the economy has faltered after recovering from the last recession in late 2012. Last month, Prime Minister Shinzo Abe postponed a planned increase in the tax to 10 percent that was due in 2015.

Japanese businesses and households frontloaded spending in the first three months of the year to beat the April 1 tax hike. Demand has been weak since then but recently monthly data suggest the worst is over.

"The upshot is that the economy likely returned to growth this quarter," Marcel Thieliant, of Capital Economics, said in a commentary.

Abe last month dissolved parliament and called a snap election, saying he wanted to win a public mandate for the tax hike delay and other policies. He has promised to step down if his Liberal Democratic Party fails to keep its parliamentary majority, but that is unlikely because the opposition is in disarray.

Abe has sought to end years of deflation with heavy public spending and aggressive monetary easing meant to push the economy toward an inflation target of 2 percent. So far, inflation is at less than half that level.

The hope is that expectations of higher prices will lead consumers and businesses to spend more, helping to sustain growth. Abe's government has also promised major reforms to help improve Japan's competitiveness.

On a quarterly basis, the economy shrank 0.5 percent.

The finance ministry also reported Monday that higher income from overseas investments helped Japan to log a current account surplus of 833.4 billion yen ($6.8 billion) in October. It was the fourth straight month of surplus despite a trade deficit.