Japan skirts recession in Q4 but only grows 1.5%

Japan’s economy escaped recession last quarter but grew less than first estimated as demand and wages remained weak, the government said Monday.

The world’s third-largest economy is recovering from a blow to consumer and business spending from a sales tax hike on April 1, 2014. Purchases plunged afterward.

The government said the economy grew an annualized 1.5 percent in the final quarter of 2014 compared with its earlier estimate of 2.2 percent growth. It contracted 2.6 percent in the July-September quarter and 6.4 percent in the April-June quarter.

For all of 2014, Japan’s economy stagnated, neither growing nor contracting from the previous year.

Monday’s revision reflects lower private demand, flat-lining corporate and residential investment and a downward revision to business inventories. It also showed a slight drop in incomes.

More recent data has shown a recovery in exports and increased orders of machinery, which are vital drivers for growth. Both the government and central bank say the economy is still in the midst of a moderate recovery.

“The economy is growing. Wages are growing. Only the shock of untimely consumption taxes is hampering growth,’’ Koichi Hamada, a Yale University economist and adviser to Prime Minister Shinzo Abe, told reporters last week. “There is a rosy future for the Japanese economy.”

The central bank is spending trillions of yen (tens of billions of dollars) a month on asset purchases, seeking to spur inflation and end once and for all chronic deflation that Hamada and some other economists say is slowing growth.

As the U.S. wraps up its era of so-called “quantitative easing,” Europe and Japan are still counting on it to help spur growth.

But falling oil prices and relatively weak domestic demand have slowed Japan’s progress toward its goal of a 2 percent inflation rate.

Extreme monetary easing has been the linchpin of the “Abenomics” economic revival strategy, along with strong government spending and sweeping reforms.

Progress in those areas has also been modest, with government spending rising 0.1 percent in the last quarter from the year before.

The massive injections of cash into the economy have pushed the value of the Japanese yen lower, raising import costs but also yielding a windfall for big Japanese corporations that earn much of their profit overseas.

Abe has been urging business leaders to put more of their record earnings into raising wages, to help support consumer demand. So far, most increases have come in the form of bonuses, while increases in base wages for the majority of workers employed by smaller companies have lagged inflation.

Anxiety over job insecurity and stretched incomes is a problem seen in many industrial economies, Nobel Prize winning economist Robert Shiller of Yale said at a recent news conference in Tokyo.

Shiller praised Abe for seeking to inspire more confidence, and for pledging to shake up stagnant industries and cut through bureaucratic red tape that many in Japan view as a major hindrance.

But the impasse over spending remains a challenge in Japan and elsewhere, he said.

“People are worried and the result of the worrying is they don’t want to spend much,” Shiller said. “There’s no easy cure for these psychological fluctuations.”

AP