News Room - Business/Economics

Posted on 13 Nov 2007

Japan's economy grows annualised 2.6% in third quarter

Japan's economy grew at a stronger-than-expected 2.6 percent annualised rate in the third quarter of 2007, easily avoiding recession after a contraction in the second quarter, the government said Tuesday.

 

Brisk exports and increased investment by companies in new equipment and factories helped to drive the strong recovery, while weakness in the housing sector was a drag on growth.

 

Quarter-on-quarter, the country's gross domestic product (GDP) expanded by 0.6 percent in the three months to September, after shrinking 0.4 percent in the previous quarter, figures from the Cabinet Office showed.

 

The world's second-largest economy has been gradually recovering from a slump stretching back over a decade but the revival stalled in the second quarter of 2007 as firms cut spending on new factories and equipment.

 

A second consecutive quarter of negative growth would have seen Japan slip back into recession by the most widely accepted definition.

 

In the event the robust third-quarter performance beat market forecasts for a quarter-on-quarter expansion of 0.4 percent and an annualised rate of 1.8 percent.

 

The return to positive growth will be welcomed by the central bank but analysts believe it is unlikely to be enough to justify another interest rate rise yet amid stubborn deflation and worries about the health of the US economy.

 

The Bank of Japan is due to announce the outcome of a two-day monetary policy meeting later on Tuesday, but most analysts now think another rate hike is unlikely before early 2008.