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GDP UPDATE3
(Japan Economic Newswire Via Acquire Media NewsEdge) TOKYO, Feb. 13 -- (Kyodo) _ (EDS: ADDING INFO)
Japan's economy contracted a faster-than-expected real 2.3 percent in annualized terms during the last three months of 2011 on slowing exports, affected by the massive flooding in Thailand and gloomier prospects for the world economy amid the sovereign debt crisis in Europe, the government said Monday.
The October-December gross domestic product also highlighted the government's struggles to restore the world's third-biggest economy following the March 2011 earthquake and tsunami in the face of continued downward pressure from the strong yen, although the government stressed the contraction was temporary and that the economy's upward momentum remains.
The preliminary report comes as the Bank of Japan starts monetary policy discussions at a two-day meeting, with analysts saying the central bank could come under pressure from politicians to further ease monetary conditions.
Economists had forecast an average 1.4 percent fall in real, or inflation-adjusted, GDP in a Kyodo News survey.
For the whole of 2011, the economy shrank 0.9 percent from 2010, the first fall in two years, the Cabinet Office said. It decelerated from 4.4 percent growth in the previous year.
The GDP contraction on weakening exports amid the Thai floods, which severely damaged Japanese manufacturers by disrupting supply chains, was "largely expected and not surprising," said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co.
But Kanno also said a major surprise came from sluggish government spending. "A delay in reconstruction work (in the quake-hit Tohoku region) has amounted to a big weight on GDP," he said, warning, "There is a possibility the timing of (Japan's economic) recovery could be retarded" if budgets for the work are not implemented as planned.
GDP, or the total value of domestically produced goods and services, marked the first negative growth in two quarters, corresponding to a 0.6 percent contraction on a non-annualized basis from the previous quarter, during which the economy grew an upwardly revised 1.7 percent.
Exports of goods and services slowed a real 3.1 percent with the Cabinet Office saying that shipments to Europe and Asia were significantly lower. By product, vehicles and electronic parts, including semiconductors, led the decline.
The Thai floods caused serious drops in production and exports by major Japanese carmakers and high-tech firms operating facilities in the Southeast Asian country, although there is little continuing impact on the Japanese economy, according to the government officials.
Slower growth prospects for Europe amid fiscal problems in the eurozone have weighed on business and consumer sentiment in the region and imports from Asia have considerably decelerated. Japan normally exports key components to other Asian economies such as Taiwan, South Korea and Singapore, and those economies make final products for consumption in Europe.
In addition, the yen briefly surged to a postwar record 75.32 yen against the U.S. dollar on Oct. 31, casting a shadow over the profitability of Japanese exporters and triggering market interventions to mitigate the yen's advance. Separate data earlier showed that Japan suffered its first annual trade deficit in 31 years in 2011.
Imports, meanwhile, accelerated 1.0 percent, on a rise in such imports as steel and mobile phones. Weak external demand, or net exports, eroded GDP by 0.6 percentage point while domestic demand pushed growth up by only 0.1 percentage point.
Consumer spending, which makes up about 60 percent of Japanese GDP, increased 0.3 percent partly due to robust sales of vehicles as well as more spending on eating out and other services. Housing investment slipped 0.8 percent following the expiration of government subsidy programs.
Corporate capital spending grew 1.9 percent with brighter signs observed in the construction sector, which is deeply involved in rebuilding Tohoku. Public investment fell 2.5 percent on delayed state-backed projects for reconstruction.
In nominal terms, or before adjustment for price change, the country's GDP shrank 0.8 percent from the July-September period, or an annualized 3.1 percent. Economists had expected a 0.9 percent contraction on a non-annualized basis.
The GDP deflator, a wider inflation gauge than consumer price index, marked a 0.2 percent slide, which means the country continued to suffer deflation.
The sluggish outcome for the fourth-quarter GDP was caused by a "temporary factor" as Japanese exports suffered from the Thai flooding, which added to the negative impact earlier caused by slowdown in overseas economies, economic and fiscal policy minister Motohisa Furukawa said.
"Considering the economy as a whole, it can be said to have continued to pick up," Furukawa said in a statement released after the announcement of growth data, adding that exports should gradually recover as the world economy returns to a moderate growth track.
Some analysts echoed the view that GDP would expand again in the January-March quarter, supported by a recovery in exports and acceleration of government spending on reconstruction.
The BOJ will end its two-day policy meeting Tuesday. An immediate policy shift to ease monetary conditions, such as an expansion of the asset-purchase program, is unlikely, but the latest GDP data fueled speculation that the central bank could be forced to downgrade its view on the economy, analysts said.
(c) 2012 Kyodo News International, Inc.
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