Econintersect: Japan experienced a slowdown in the rate of GDP growth in the second quarter from the level achieved in Q1/2013. The annualized rate of growth was 2.6%, well below the expectation of 3.6% from a survey conducted by Bloomberg News. The first quarter growth was 2.9% annualized. Both domestic consumption and exports grew strongly but business investment declined, as it has been for several recent quarters.
Jonathan Soble (Financial Times) implied the planned consumption tax (Soble refers to it as a national sales tax, which is an incorrect designation since it is more closely related to a value added tax) could be at the heart of the failure for business investment. Soble wrote:
Mr Abe must decide in the next month or so whether to allow the first phase of a planned two-phase increase in the national sales tax to go ahead next spring. He must weigh the risk that a tax rise could undermine the recovery by suppressing consumer spending against the need to address Japan’s huge public debt, which is approaching the equivalent of two and a half years’ economic output.
This argument is reminiscent of the 01 July GEI News article “Japan: Conflicted Policy“. In that article it was pointed out that
… if this (the Abe policy) is aimed at stopping deflation by increasing consumer demand, what is the logic of increasing the “take” of the government from the consumer by increased taxation in the amount of about $30 billion a year in increased consumption taxes by the end of 2015? When the current tax is included the CT will be decreasing demand by more than $60 billion a year if the amount of spending remains constant. At constant spending for 20 years the total taken out of the economy will be $1.2 trillion.
Reuters reported today that an Abe advisor warned that Japanese growth remains too weak to support a consumption tax increase.
This was the sixth consecutive quarter that Japan has seen a year-over-year GDP increase and the third consecutive quarter-over-quarter growth. However, as the following chart from Trading Economics shows, the current pattern of quarter-over-quarter change does not show significant difference from the checkered record of the past six years.
- Japan GDP growth misses expectations (Jonathan Soble, Financial Times, 12 August 2013)
- Japan: Conflicted Policy (GEI News, 04 July 2013)
- Japan PM adviser Honda says GDP shows economy not ready for sales-tax hike (Yoshifumi Takemoto, Reuters, 12 August 2013)
- Japan GDP Growth Rate (Trading Economics)