TOKYO: Japan’s economy suffered its biggest quarterly contraction since the 2011 quake and tsunami as a sales tax rise slammed the brakes on growth, data showed yesterday, throwing into question plans for another increase next year.
The 1.7 percent dip in gross domestic product for the second quarter — or a 6.8 percent contraction at an annualised rate —gave the clearest picture yet of the impact of the levy rise.
The weak figures may force Tokyo to reassess another planned tax increase next year, a move aimed at finding new revenue sources to shrink the massive national debt.
While the April-June figure was slightly better than market expectations, it appeared at odds with the government and Bank of Japan’s view that the impact of the rise on the world’s number-three economy had been minimal.
Still, Prime Minister Shinzo Abe acknowledged that his administration had some work to do. “As a government, we’re going to analyse it and do our best to bring the economy back on a recovery path,” he told reporters.
With the exception of flat growth in the last quarter of 2013, the Wednesday data marked the first quarterly contraction in nearly two years and the biggest since the natural disasters more than three years ago.
“The contraction was within market expectations, but the decline in private consumption was bigger than we thought,” Yoko Takeda, chief economist with Mitsubishi Research Institute, said. “We still see the Japanese economy as being on course for a gradual recovery.” She added that the figures were an “exception” due to the tax increase. “It is more important to see the July-September quarter,” Takeda said.
“That will be the key to predicting the future of the economy, and crucial for making a decision about raising the sales tax again.”
AFP
