Japan's Economy Slows to 1% Annual Growth in 3rd-Qtr (Update2)
Japan's Economy Slows to 1% Annual Growth in 3rd-Qtr (Update2)
Dec. 9 (Bloomberg) -- Japan's economy expanded at the slowest pace this year as companies sold goods from their stockpiles rather than increasing production to meet rising demand at home and overseas.
Gross domestic product grew at an annual 1 percent pace in the three months to Sept. 30, the Cabinet Office said today in Tokyo. The rate was less than the median forecast of a 2.3 percent rise in a Bloomberg survey of 16 economists, partly because second-quarter GDP was revised to 5 percent from 3.3 percent. Third-quarter GDP had been estimated at 1.7 percent.
The world's second-biggest economy expanded for a third consecutive quarter as higher business and consumer spending signaled a recovery from four recessions since 1991 will be sustained. Companies including Toyota Motor Corp. and machinery maker Komatsu Ltd. are expanding factories and increasing wages.
``The corporate sector is now starting to look a little bit more dynamic and adventurous, coming out of that long patch of sleep of the 1990s,'' said Richard Jerram, chief economist for Japan at Macquarie Securities Ltd. in Tokyo. ``They are finally deciding they should be hiring people again and that's creating income and consumption.''
The Nikkei 225 Stock Average rose 0.3 percent to 15,223.79 at 10:14 a.m. in Tokyo. The yen declined to 120.66 against the dollar from 120.41 immediately before the figures were released. The yield on the 1.5 percent bond due December 2015 fell 1 basis points to 1.515 percent.
Inventories
Inventories contracted 0.4 percent during the quarter. The government's figures had previously shown inventories were unchanged in the quarter.
``The GDP figures look bad on the first glance, but when you take a closer look, capital spending and consumption is picking up so it's actually not that bad,'' said Hideaki Kurimoto, who helps manage about $2.5 billion at Meiji Dresdner Asset Management Co. in Tokyo.
Capital spending, which makes up about 17 percent of the economy, rose a seasonally adjusted 1.6 percent in the third quarter, compared with an initial estimate of 0.7 percent, today's report said. Economists expected capital spending to rise 1.6 percent.
Consumer spending rose 0.4 percent, compared with an initial estimate of a 0.3 percent gain. Economists expected spending to be unchanged from the initial estimate.
Government investment rose 0.3 percent compared with 1 percent in the previous calculation.
``The revision of public investment seems to be the biggest contributor to the change, so I'm not that worried,'' said Kurimoto.
Capital Investment
``The content of the third GDP numbers wasn't bad at all, as domestic demand such as capital investment was strong,'' said Tatsuya Torikoshi, a senior economist at Daiwa Institute Research in Tokyo. ``The big upward revisions of the earlier quarter also influenced the third quarter figure.''
The government lowered its 2004 economic growth calculation to 1.7 percent from 1.9 percent after applying the new accounting method. That re-calculation has had an effect on all subsequent seasonally adjusted figures, said Naoki Iizuka, chief economist at Dai-Ichi Life Research Institute in Tokyo.
The world's second-largest economy grew a seasonally adjusted 0.2 percent in the third quarter from the second. That was less than the government's initial 0.4 percent estimate and was below the median forecast of a 0.6 percent gain in a Bloomberg survey of 21 economists.
Average Growth
For the year starting April 1, the Japanese economy has grown at an average annualized pace of 3 percent. That is above the average 2.8 percent pace the economy would have grown if the second quarter wasn't revised and the third quarter was in line with forecasts.
Today's revision takes into account figures released last week by the Ministry of Finance showing capital spending grew 9.6 percent in the third quarter from the same period a year earlier. The figures measured by the ministry's capital spending report make up about 60 percent of corporate investment as measured by GDP.
Manufacturers increased spending by 18.7 percent from the same quarter a year earlier, according to the Ministry of Finance report. Spending by non-manufacturers rose by 5 percent in the quarter, the eighth-straight quarterly gain.
Fourth Recession
Komatsu, the world's second-biggest maker of construction machinery and mining equipment, said it will invest 119 billion yen ($989 million) in the year to March, 2006, to boost production capacity to meet growing demand. That's 19.5 billion yen more than it previously had forecast.
``Capital spending is a driving force at the moment and consumer spending has been supportive,'' Hitoshi Asaoka, an economist at Mitsubishi Research Institute in Tokyo said before the report. ``Exports also started to improve from about September.''
Japan's recovery from its fourth recession since 1991 is being fueled by consumer and capital spending, rather than exports and government money, according to the Cabinet Office.
Consumer spending, which has risen for the past three quarters, is also supporting growth as rising wages and better job prospects encourage consumers to spend. Wages increased 0.5 percent in October, the fifth gain in six months, according to the Ministry of Health, Labor and Welfare last month.
`Upward Trend'
``The Japanese economy is certainly on an upward trend,'' said Seiji Hanaoka, chief executive officer at Seiko Epson last month. ``General consumption is recovering. People are becoming a little more relaxed about spending. I don't think it will slow down after the New Years.''
Japanese consumers are also becoming optimistic and are increasingly expecting prices to rise over the next year. The Cabinet Office's consumer confidence survey for October showed that in October for a second straight month more than 50 percent of households surveyed expect prices to rise over the next year.
Expectations of higher prices can lead consumers to increase spending, said economist Azusa Kato from BNP Paribas Securities Japan Ltd.
The Bank of Japan Governor Toshihiko Fukui said yesterday his board is close to ending its policy to fight seven years of deflation, as consumer prices are likely to gain in the first quarter of next year.
``The Japanese economy continues to recover,'' said Tadashi Okamura, chairman of the Japan Electronics and Information Technology Industries Association and also Chairman of Toshiba Corp. last month. ``The main issues now are a real recovery in consumer spending and an exit from deflation.''
To contact the reporter on this story: Lindsay Whipp in Tokyo at lwhipp1@bloomberg.net
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