Japan Economy Shrinks in April-June on Weak Consumption, Exports

Tokyo, Aug. 13 (Jiji Press)--The Japanese economy contracted in
April-June for the first time in four quarters, dragged down by slumping personal consumption and a setback in exports reflecting the slowing world economy.

In the first quarter of fiscal 2008, the nation's seasonally
adjusted gross domestic product shrank a real 0.6 pct from the previous quarter, posting an annualized decline of 2.4 pct, the Cabinet Office said in a preliminary report Wednesday.

The annualized reading was almost in line with the average estimate
of a 2.5 pct drop among nine think tanks. Their estimates ranged from a 1.0
pct fall to a 3.2 pct drop.
The negative GDP growth provided a fresh indication that the
Japanese economy might have slipped into a downtrend following its longest
expansion in the postwar period that began in February 2002. The
quarter-on-quarter contraction of 0.6 pct was the sharpest since the 1.1 pct
drop marked in July-September 2001.
In nominal terms, Japan's April-June GDP shrank 0.7 pct quarter on
quarter for an annualized decrease of 2.7 pct.
The latest data showed that Japan's exports, which have served as a
key driver for the nation's long economic recovery, plunged a real 2.3 pct
quarter on quarter to mark the first drop since January-March 2005. Demand
from abroad deteriorated for such items as automobiles, steel, nonferrous
metal products and industrial machinery, according to a Cabinet Office
official.
The official noted that Europe-bound exports were particularly
sluggish because of the region's economic slowdown.
Japan's imports from the rest of the world decreased 2.8 pct, the
dada showed.
External demand, or net exports, served to push up the April-June
GDP by 0.02 pct, while domestic demand had an effect of dragging down the
GDP by 0.6 pct.
Among key domestic demand components, personal consumption, which
accounts for more than half of Japan's GDP, dropped a real 0.5 pct quarter
on quarter, logging the first decrease in seven quarters.
Japanese consumers cut back spending on dining out and on such
items as kerosene, electricity and sweets and telecommunications services,
the Cabinet Office official said.
Housing investment sank a real 3.4 pct, following a sharp rebound
in the previous quarter, showing that housing starts still remain on a
downtrend.
Corporate capital expenditures slipped 0.2 pct to register the
second consecutive quarter-on-quarter fall since corporate earnings were
squeezed by deteriorating business conditions, the official said.
There was no positive factor in the latest GDP data, Taro Saito, a
senior economist at the NLI Research Institute, said, warning that personal
spending may decline further as Japanese households' real income has started
to decrease and prices in the nation are seen to continue rising.
Because of deteriorating corporate earnings, capital spending may
show a clear downtrend in the near future, Saito said.
Domestic demand will probably remain stalled, he said, adding that
strong support from external demand is also unlikely.
Masamichi Adachi, senior economist of JPMorgan Securities Japan
Co., said that the government's fiscal 2008 real GDP growth estimate of 1.3
pct does not seem to be attainable, showing strong concerns over the course
of consumption and corporate earnings.
The latest GDP data are expected to force the government to lower
the growth projection, he said.
The Cabinet Office data showed that the GDP deflator, a key
yardstick for price trends, fell 1.6 pct from a year before in April-June.
But the deflator for private consumption rose 0.4 pct, the second straight
year-on-year growth, due to recent price increases caused by higher
materials costs.
The government agency is set to announce revised April-June GDP
data on Sept. 12.