Japan's economy grew at an annualized pace of 2.6 percent in the April-June period on the back of a recovery in consumption and exports, the government said Monday. Although the gross domestic product (GDP) expanded for the third straight quarter, the growth was much weaker than the forecast due to weak capital investment and public investment, according to preliminary data released by the Cabinet Office.
The weaker data adds to uncertainty about Prime Minister Shinzo Abe's sales tax hike plan to restore the country's fiscal health. On a quarterly basis, the world's third-biggest economy's GDP rose 0.6 percent in the three months ended June 30 from the January-March period. "The April-June GDP figures show the effects of Prime Minister Abe's economic policies have been appearing," Economy and Fiscal Policy Minister Akira Amari told a press conference after the Cabinet released GDP data.
Asked about whether economic conditions support the government's planned consumption tax hike, Amari said, "The GDP, which is one of the factors for making the judgment on the hike, continues to produce good numbers." Abe will decide in the autumn whether to raise the sales tax from the current 5 percent to 8 percent next April.
In regard to foreign demand, exports, one of the key engines of nation's economic recovery, went up 3.0 percent, buoyed by strong automobile shipments to the US on the weak yen. On the domestic front, personal consumption, which accounts for about 60 percent of Japan's GDP, grew 0.8 percent, up for the third consecutive quarter, thanks to robust sales of luxury products, clothing and eating out.
But corporate capital spending, another key pillar of domestic demand, fell 0.1 percent. The GDP deflator, a gauge of overall price movements, rose 0.1 percent from the previous quarter for the first increase in three quarters, suggesting the Japanese economy is emerging from nearly two decades of deflation. Nominal GDP, which is before adjusting for inflation, grew 0.7 percent on quarter, or an annualized 2.9 percent. GDP is the total value of goods and services produced domestically.