Japan’s GDP data points to recovery

City A.M. Reporter
JAPAN’S economy contracted 0.3 percent in the three months to the end of June, slower than the decline in the previous quarter, as output recovers from the devastating earthquake and tsunami in March, Cabinet Office data showed yesterday.

The quarter-on-quarter contraction was smaller than the median estimate for a 0.7 per cent decline and follows a 0.9 per cent contraction in the January-March quarter.

“GDP should start to expand in the third quarter, as output continues to recover and reconstruction-related expenditure kicks in,” said Capital Economics in a note. The economy started to bounce back from March’s devastation as quickly as April, the monthly data revealed. “Nonetheless, headwinds will act as a drag on the recovery,” Capital warned.

Japan’s GDP figure translated into an annualised fall of 1.3 per cent, smaller than the median forecast for a 2.6 per cent contraction and compares with 1.3 per cent annualised growth in the US in the same quarter.

Private consumption, which makes up around 60 per cent of the economy, fell 0.1 per cent in April-June as some households cut back on spending after a large earthquake, tsunami and nuclear meltdown in March.

External demand, or net exports, pushed down GDP by 0.8 percentage points, as the disaster prevented some Japanese manufacturers from shipping goods abroad, as imports rose and as overseas economies showed some signs of slowing.

Japan is likely to emerge from recession between July and September as manufacturers shake off supply constraints, but a soaring yen and widespread fears of a sovereign debt crisis pose risks to the country’s fragile recovery.