Business | Economy
Japan sees bleaker growth outlook
The outlook for Japan's overall economic activity in April-June appears to be bleaker than initially estimated after an unexpected slide in corporate capital spending that fuelled recession fears.
- Agencies
- Published: 23:12 September 5, 2008
Tokyo: The outlook for Japan's overall economic activity in April-June appears to be bleaker than initially estimated after an unexpected slide in corporate capital spending that fuelled recession fears.
A Reuters poll found yesterday that economists see a median one per cent contraction in the second quarter, as a weak reading in a survey of companies' capital spending plans prompted them to revise down their forecasts.
Japanese corporate capital spending unexpectedly fell 6.5 per cent in the second quarter from a year earlier, a survey by the Ministry of Finance showed.
"A deterioration in export conditions has impacted the domestic economy and home demand-oriented non-manufacturers' appetite for capital investment is weakening more than expected," said Takumi Tsunoda, a Shinkin Central Bank Research economist.
An early estimate of Japan's gross domestic product (GDP) showed the economy shrank 0.6 per cent in the quarter. Revised figures are due out on Sept. 12.
Private capital investment is seen revised down sharply to a fall of 2.5 per cent from an initial estimate of a 0.2 per cent decline, the poll showed.
With pessimism over the health of the global economy pervading in financial markets, the data underscored the pain that high raw material costs have been inflicting on Japan's economy, which is already seen as in or near a recession.
The capital spending figures came out as the yen surged to a 13-month high against a sliding euro yesterday, with investors fleeing leveraged carry trades amid falling share markets and rising risk aversion.
The Nikkei share average slid nearly three per cent while Japanese government bonds soared as investors fled to the safety of sovereign debt.
Economics Minister Kaoru Yosano, who plans to run in the race for Japan's next leader after outgoing Prime Minister Yasuo Fukuda abruptly quit on Monday, said the clouds over the Japanese economy should clear once overseas economic conditions improve.
"Commodity prices were rising until mid-July so that will weigh on corporate revenues until July-September. After that, the negative impact from high raw material costs will gradually ease," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"But that doesn't mean troubles for Japanese companies are over, as they won't see sales increase much with weakness in the US and European econ-omies spreading to emerging economies."
Corporate capital spending had been a key driver of Japan's economy but has lost steam recently as profits have been eroded by high raw material prices, while a global slowdown has taken a toll on overseas sales.
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