Posted on: Friday, August 30, 2002

Japan's recovery facing new threats

By Ann Saphir
Bloomberg News Service

TOKYO — Japan said its recovery from recession was weaker than earlier estimated, and falling factory production and consumer spending suggest growth in the world's second-biggest economy may slow.

The government said the economy didn't grow in the first quarter, wiping out an initial estimate of a 1.4 percent expansion, and grew only 0.5 percent last quarter.

The weaker-than-expected growth comes three months after the government said the economy had hit bottom after 19 months of recession.

The sluggish growth figures mean Prime Minister Junichiro Koizumi may come under more pressure to make deeper tax cuts or break his promise to reduce government spending in a bid to pull the world's second-biggest economy out of a 12-year economic slump.

"There's no happy ending in sight," said Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y. "It's certain that with figures like this any effort to cut spending is going to run into heavy resistance."

Other economic reports released yesterday in Japan showed factory production unexpectedly fell 0.4 percent last month, retail sales dropped 2.2 percent, the jobless rate held steady at 5.4 percent — just below its record 5.5 percent — and consumer prices fell from year-ago levels.

A slowdown in the U.S economy also threatens Japan's recovery. Exports accounted for more than half of Japan's second-quarter growth.

"Risks are rising, and we should watch out for that in the months ahead," said Economic and Fiscal Policy Minister Heizo Takenaka. "Still, today's figures won't affect the government's economic policies. I still think Japan's economy is recovering."

Takenaka said there's no need to revise the government forecast of no economic growth this year, following a 1.9 percent decline last year.

Consumer spending, which also contributed to GDP growth last quarter, may already be fading. Spending by households headed by a salaried worker fell 0.1 percent last month, the government said.