Abe under pressure as Japan's economic growth stalls in Q2

TOKYO • Japan's economic growth ground to a halt in the April-June period after stellar expansion in the previous quarter on weak exports and capital expenditure, putting more pressure on Premier Shinzo Abe to come up with policies that produce more sustainable growth.

The world's third-largest economy expanded by an annualised 0.2 per cent in the second quarter, less than a median market forecast for a 0.7 per cent increase and a marked slowdown from a revised 2 per cent increase in January to March, Cabinet Office data showed yesterday.

The weak reading underscores the challenges policymakers face in putting a sustained end to two decades of deflation, with the initial boost from Mr Abe's stimulus programmes, "Abenomics", fading.

Mizuho Securities senior economist Norio Miyagawa said: "Overall, it looks like the economy is stagnating. Consumer spending is weak and the reason is low wage gains. There is a lot of uncertainty about overseas economies and this is holding back capital expenditure.

"The government has already announced a big stimulus package, so the next question is how the Bank of Japan (BOJ) will respond after its comprehensive policy review."

On a quarter-on-quarter basis, gross domestic product marked flat growth in the April-June quarter, weaker than a median market forecast for a 0.2 per cent rise.

Private consumption rose 0.2 per cent in the quarter, matching a median market forecast but slowing from a 0.7 per cent increase in the previous quarter.

Capital expenditure declined 0.4 per cent in the April-June quarter after a 0.7 per cent drop in the first quarter, the data showed, suggesting that uncertainty over the global economic outlook and weak domestic markets are keeping firms from boosting spending.

Mr Abe's Cabinet this month announced an economic package with 13.5 trillion yen (S$180 billion) in fiscal measures, hoping it would help the economy deflect external headwinds and sustain a moderate recovery.

The BOJ expanded stimulus last month via a modest increase in purchases of risky assets. But it remains under pressure to do more next month when it conducts a thorough assessment of the effects of its stimulus programme.

Meanwhile, Japan's Ministry of Finance is negotiating with the country's major banks to lend to the government at a zero interest rate in auctions beginning in October or November, a government official said yesterday. The approach to lenders comes after BOJ's easing drove yields below zero for most of the Japanese government bonds traded in the market.

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 16, 2016, with the headline 'Abe under pressure as Japan's economic growth stalls in Q2'. Print Edition | Subscribe