Japan emerges from recession, but recovery seen fragile

16 Feb 2015


The Japanese economy has come out of recession in the fourth quarter of 2014 by posting a 2.2 per cent growth on annualised basis, according to preliminary data released by the government.

Although the latest gross domestic product (GDP) figures may give some relief to prime minister Shinzo Abe, who had pledged to revive growth in the world's third-largest economy, it is far below the economists' forecast of a 3.8-per cent expansion.

The country's economy had been struggling in the previous quarters after the government raised the sales tax to 8 per cent from 5 per cent in April, for the first time in 17 years, resulting in two consecutive quarters of negative growth.

Over the September quarter, the economy has grown 0.6 per cent.

Private consumption, which makes up 60 per cent of the economic output, was weaker than expected. It went up 0.3 per cent over the third quarter while corporate investment was marginally up at 0.1 per cent.

On the back of a weaker yen, exports grew 2.7 per cent over the previous quarter, while imports went up 1.3 per cent.

Concerned about the economic downturn, Abe had postponed a further rise in sales tax due this October by 18 months and pumped in additional $29 billion to the economy in December to stimulate growth. The action has helped to increase property prices and devalue the Japanese yen, which helped to boost exports.

However, a majority of the population is suffering from stagnant wages and rising prices, although unemployment is just 3.5 per cent.

Despite sitting on high cash piles, Japanese corporations are reluctant to invest in new ventures and additional capacities apparently due to weak business sentiment.

Regardless of the economic growth in the fourth quarter, some analysts consider that one quarter of positive GDP growth does not confirm a change in trend.

However, the government is optimistic about growth prospects.

''Consumer sentiment is improving rapidly. The outlook for the economy appears positive,'' Akira Amari, economy minister, said.

For the whole year, economic growth was flat at 0 per cent after reporting a 1.6-per cent growth in 2013.

The final GDP figures are expected in the coming weeks.

Japanese shares hit the highest level in nearly 8 years with the Nikkei index ending 0.5 per cent higher at 18,004.77 in today's trading, following the release of the GDP data.

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