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Economy in Brief

Japan Economy in Renewed Slump as GDP Falls in Q4
by Carol Stone February 16, 2005

Japanese GDP, reported for Q4 today in Tokyo, badly disappointed. It fell 0.1% (0.5% annualized), compared with a 0.7% increase expected by market forecasters. Thus, after a 1.4% gain in Q1, GDP has now fallen three consecutive quarters, leading some to say that Japan has once again slumped into recession.

Sluggish household spending was the main culprit, down 0.3% following -0.2% in Q3. Imports also contributed with a sizable 3.1% quarterly increase. In contrast, capital spending advanced 0.5%, with gains in both dwellings and private plant and equipment. Government investment declined, but much less than in Q3.

The shallow declines, while weaker than market expectations, still left GDP well above year-earlier levels. And the growth for the year as a whole, 2.6% over 2003, was the largest since 1996. Yesterday, in discussing the shortfall in European growth, Louise Curley illustrated the constricting forces of strong currency and higher oil prices. These factors also apply in Japan. Further, employment in Japan has been weak for several years, also restraining consumer spending; the number of employed persons did recover somewhat in the first half of 2004, but then fell back, erasing those earlier increases. Thus, the Japanese economy, which had looked promising several months ago, has sagged anew, with prospects clouded for any renewal of more vigorous performance.

% Changes Q4 2004* Q3 2004* Year/Year 2004 2003 2002
GDP -0.1 -0.3 3.4 2.6 1.4 -0.3
Final Consumption: Households -0.3 -0.2 0.2 1.5 0.2 0.5
Government 0.4 0.3 2.6 2.6 1.2 2.6
Gross Fixed Capital Formation 0.5 0.0 -0.6 1.8 0.9 -5.7
Exports 1.3 0.6 3.9 14.3 9.1 7.3
Imports 3.1 2.4 6.6 9.2 3.8 1.3
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