TOKYO – Japan’s economy averted recession but rebounded much less than expected in the quarter from October to December as business investment slumped, a sign of the challenge that the central bank faces in phasing out its massive stimulus programme.
While private consumption is holding up against headwinds from rising living costs, uncertainties over the global economic outlook will weigh on Japan’s delayed recovery from the scars of the Covid-19 pandemic, analysts say.
The world’s third-largest economy expanded an annualised 0.6 per cent in the final quarter of 2022 after slumping a revised 1 per cent in the July to September period, government data showed on Tuesday.
The increase in gross domestic product (GDP) was much smaller than a median market forecast for a 2 per cent rise due to a downswing in capital expenditure and inventory.
“With other advanced economies heading into recessions, we still expect net trade to drag Japan into a recession as well in the first half, especially since business investment is weakening faster than we had expected,” said Mr Darren Tay, Japan economist at Capital Economics.
Private consumption, which accounts for more than half of Japan’s GDP, rose 0.5 per cent in the fourth quarter, matching a median market forecast.
But capital expenditure fell 0.5 per cent more than market forecasts for a 0.2 per cent decline, the data showed.
External demand added 0.3 percentage point to growth, against a 0.4-point contribution projected by analysts.
“From a negative growth in July to September, the rebound is not very impressive,” said Daiwa Securities chief economist Toru Suehiro.
“We can expect consumption to pick up as service spending stabilises. But it is difficult to project a strong recovery partly due to pressure from rising inflation,” he said.
Japan has seen an increase in the number of overseas visitors since ending in October some of the world’s strictest border controls to prevent the spread of Covid-19.
Policymakers hope a rebound in domestic consumption, driven by savings accumulated during the pandemic, will last long enough for wages to pick up and cushion the blow on households from rising food and fuel costs.
With inflation exceeding the Bank of Japan’s 2 per cent target, the outlook for the economy and wages will be key to how soon the central bank can phase out its massive stimulus programme. REUTERS