Japan's Economy Shrank 1.3% in Fourth Quarter, More Than Previous Estimate

Japan’s economy contracted more than the government initially estimated in the fourth quarter because of a downward revision to capital investment and consumer spending.

Gross domestic product shrank at an annualized 1.3 percent rate in the three months ended Dec. 31, more than the 1.1 percent contraction reported last month, the Cabinet Office said today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was for a 1.2 percent contraction.

Recent reports show the world’s third-largest economy may have already put the worst behind it with machinery orders, an indicator of future capital spending, and industrial production both rising in January. Companies including Sony Corp. and Nissan Motor Co. are forecasting an increase in sales as demand in Asia grows.

“Consumer spending will come back and exports and production will be supported by the global recovery,” said Takehiro Sato, chief Japan economist at Morgan Stanley MUFG Securities Co. in Tokyo, who correctly predicted the annualized GDP contraction.

Japan’s stocks retreated in tandem with shares from Seoul to Sydney on concern that the increase in oil prices will damp the world economy’s expansion. The Nikkei 225 Stock Average was down 1 percent at 10,480.24 as of 10:18 a.m. in Tokyo.

Consumer Spending

Private consumption fell 0.8 percent drove GDP lower in the fourth quarter after the government ended a subsidy program to buy fuel-efficient cars in September and reduced incentives to purchase electronic home appliances in December, a program that will end in March. Capital spending rose 0.5 percent, compared with the initial estimate of a 0.9 percent increase.

GDP will probably expand 1.73 percent in the first quarter with growth accelerating to a 2.08 percent pace by the fourth quarter, according to the average forecast of 43 economists in a survey by the government-affiliated Economic Planning Association released on March 8.

Today’s report confirmed “the economy paused in the October to December period, but it is rebounding this year,” supported by exports and automobile sales, Takashi Wada, a parliamentary secretary to the Cabinet Office, told reporters in Tokyo. “The biggest concerns going forward are conditions in the Middle East and rising oil prices.”

Asian Demand

Japanese companies are tapping demand in Asia. Sony forecast its sales of televisions in India may almost double to about 1.6 million units next fiscal year, Masaru Tamagawa, Sony India’s managing director, said last month.

Nissan, Japan’s second-largest automaker, raised its profit forecast last month after new models and increasing sales in Asia helped the company offset the impact of a stronger yen, which has risen 9 percent against the dollar in the past year.

China’s imports soared 51 percent in January from a year before, while the jobless rate in the U.S. unexpectedly slid to the lowest level in almost two years in February. China and the U.S. are Japan’s two largest markets.

Risks to Japan’s recovery include higher oil prices that could depress capital spending and private consumption, according to Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. Crude oil prices have risen more than 10 percent this year and are approaching their 2008 peak.

“If oil keeps surging, growth may not accelerate in the coming quarters like we had expected,” Shinke said. “Going forward, rising oil prices are going to erode corporate profits, and if that leads to a rise in consumer prices, that could really hold down consumer spending.”

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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