TOKYO — Japan’s economic growth slowed in the second quarter to an annualized rate of 2.6 percent, government data showed on Monday, clouding the outlook for the economic policies of Prime Minister Shinzo Abe and raising concerns that he may put off moves to tackle the country’s enormous public debt.
This was the third consecutive quarter of growth for Japan’s roughly $5 trillion gross domestic product, the third-largest in the world after the United States and China. Still, the expansion fell short of analysts’ expectations for Japan, whose economy grew at a robust pace of 3.8 percent in the previous quarter, helped by the Abe government’s bold monetary and fiscal stimulus drive.
Economists polled by Reuters had expected Japan’s economy to grow at a similarly healthy clip in the April-June quarter. But weak capital expenditure, reflecting continued caution among Japanese corporations over the country’s long-term prospects, slowed growth, according to figures released by the Cabinet Office.
Compared with the previous quarter, the Japanese economy grew 0.6 percent in the latest quarter. Private consumption rose a better-than-expected 0.8 percent over the previous quarter, as a brightening mood in Japan pushed up spending on food, travel and luxury products. But capital expenditure fell by 0.1 percent, below a market forecast for a 0.7 percent increase.
Signs of slowing growth could strengthen the hand of critics of Mr. Abe’s economic drive, which has relied heavily on monetary stimulus and government spending to revive growth in Japan’s long-deflationary economy. Mr. Abe has promised to follow up with market deregulation and easing trade barriers to raise Japan’s long-term growth potential.
Weaker growth could also derail Japan’s plans to raise taxes and pare back its soaring debt, which reached 1 quadrillion yen ($10 trillion) in the second quarter, more than twice the size of its economy. To start easing that debt burden, the government plans to raise a flat consumption tax rate to 8 percent in April 2014 from the current level of 5 percent, and to 10 percent in October 2015.
According to government calculations, raising the consumption tax rate could double tax receipts to more than 5 percent of Japan’s gross domestic product, compared with the current 2 to 3 percent, helping Japan better balance its finances.
Whether Japan goes ahead with raising taxes will depend on how sustainable the government deems current economic growth to be. Under the current plan, the consumption tax will proceed if it is likely that the Japanese economy can sustain at least 2 percent real G.D.P. growth for the next decade.
Some economists warn that raising taxes too soon could derail Japan’s nascent recovery.
“A tightening in fiscal policy would almost certainly snuff out the current cyclical rebound,” Duncan Wooldridge and Silvia Liu, economists at UBS, said in a note to clients ahead of the G.D.P. numbers.
“The desire for fiscal consolidation in the long run must not sacrifice the war on deflation in the short run,” they said. “To hike or not to hike the consumption tax is the only policy which matters over the next four quarters.”
Article source: http://www.nytimes.com/2013/08/12/business/global/economic-expansion-slows-down-in-japan.html?partner=rss&emc=rss