GDP falls for 1st time in 9 quarters as consumer spending flat

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The Yomiuri Shimbun

Japan’s real gross domestic product in the January-March quarter dropped 0.6 percent on an annualized rate — the first fall in nine quarters — the Cabinet Office announced Wednesday in its interim report.

The GDP figure fell 0.2 percent from the preceding October-December 2017 quarter, after excluding effects from price fluctuations.

The previous time the GDP recorded negative growth was in the October-December quarter of 2015.

Sluggish consumer spending was a major factor behind the negative growth. Although the growth rate of consumer spending — which accounts for about 60 percent of GDP — was almost flat, the figure fell 0.001 percent on a quarterly basis for the first decline in two quarters.

Automobile and smartphone sales were slow, and consumption for eating and drinking also fell. The purchasing power of households is assumed to have weakened because of price hikes for vegetables and gasoline.

Capital investments dropped 0.1 percent, marking the first decline in six quarters, as investments related to telecommunications machinery decreased.

Housing investments fell 2.1 percent, and public investments increased 0.02 percent.

Toshimitsu Motegi, minister in charge of economic revitalization, issued a comment on Wednesday. “Consumer spending was flat due to temporary factors, and also because of a recoil reduction in spending on smartphones following the increase in the previous quarter. As the fall occurred after eight consecutive quarters of growth, I have not changed my view that the economy has been gradually recovering.”

Exports rose 0.6 percent, marking the third straight quarterly increase. However, growth in the January-March quarter slowed down remarkably due to high growth around the 2 percent line recorded for two quarters before the January-March period. The slowdown was mainly due to exports of electronic parts, which had been brisk, not increasing sufficiently.

Nominal GDP, which closely reflects household sentiment, fell 0.4 percent — the first drop in six quarters. The annualized rate was a 1.5 percent decline.

The GDP growth rates in fiscal 2017 were 1.5 percent on a real basis, a rise for the third straight fiscal year, and 1.6 percent on a nominal basis, a rise for the sixth straight fiscal year.

Yoshimasa Maruyama, chief market economist of SMBC Nikko Securities Inc., said, “The result was dull. The rising pace of wage increases has been limited, consumers have not loosened purse strings, and consumer spending has thus been sluggish. It is also necessary to watch the moves of overseas economies, as we cannot be optimistic about future conditions.”

Price concerns hinder spending

By Mayumi Terashima / Yomiuri Shimbun Staff Writer

With Japan’s gross domestic product shrinking during the January-March period, marking the first negative growth in two years and three months, it is clear that the nation’s economy — which had been modestly but steadily recovering — is now at a standstill.

The government has attributed the negative growth to temporary factors, but the prospects for the economy remain uncertain.

The sluggishness in consumer spending, which accounts for about 60 percent of the nation’s GDP, can be attributed to increases in vegetable prices due to bad weather. The latest data has shed light on the weakness of the Japanese economy, which can be swayed by such temporary factors.

Due to labor shortages and rising raw material prices, prices of daily commodities and services have seen a steady succession of increases. In this year’s shunto spring labor-management wage negotiations, major companies, in particular, have agreed on higher pay hikes than in the previous year. However, it is concerning that price increases could undermine the effects of such pay hikes and boost the trend of reduced household spending.

The Japanese economy is entering a crucial stage for realizing a “virtuous economic cycle” in which improved corporate performance will lead to wage raises and, in turn, increased consumer spending.

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