News Room - Business/Economics

Posted on 14 Mar 2008

GDP grew real 3.5% in last quarter

Japan's economy grew an annualized real 3.5 percent in the October-December quarter, revised slightly downward from an initially reported 3.7 percent rise due mainly to slower expansion in corporate capital spending, the government said Wednesday.

The revised gross domestic product figure beat general market expectations that the fourth-quarter GDP would be significantly lowered, after a Finance Ministry survey showed earlier this month a 7.7 percent year-on-year fall in capital spending in the October-December period.

The annualized real 3.5 percent growth corresponds to a 0.86 percent increase from the July-September period, little changed from a preliminary 0.91 percent rise, the Cabinet Office said.

The deceleration in capital spending was cushioned by increases in private inventories and government consumption for medical expenses, according to the office.

Takashi Omori, chief economist at UBS Securities Japan Ltd., said the revised GDP data were not as weak as market projections as capital spending by the financial sector remained firm. The Finance Ministry survey does not cover business investment by the financial industry.

"Although stock and other financial markets fell on concerns about the future economic outlook, the GDP data showed that the real economy in the fourth quarter was relatively firm," Omori said.

On a nominal basis, which is unadjusted for price changes, GDP expanded 0.2 percent in the fourth quarter from the previous three-month period. It translates into an annualized increase of 0.8 percent.

In the preliminary report, GDP grew a nominal 0.3 percent in the last quarter of 2007 from July-September, or an annualized 1.2 percent.

Through 2007, the world's second-biggest economy expanded a real 2.1 percent and nominal 1.3 percent, both unchanged from the initial reports.

The government said the economy will be able to achieve its projection of 1.3 percent real growth in the current fiscal year through March 31, even if it shrinks 1.4 percent in the January-March quarter from the previous three months, or an annualized 5.6 percent.

UBS Securities' Omori said he expects the economy to "keep growing" in the January-March quarter, even though its pace might be "slow."

The government initially forecast 2.1 percent real growth for fiscal 2007, but later trimmed its outlook due to repercussions from stricter building regulations introduced last June.

Omori said the economy will likely achieve 1.3 percent growth in fiscal 2007, adding, "We will confirm that the economy has yet to start collapsing."

The revised report showed capital investment rose 2.0 percent in real terms from the previous quarter, slowing from a preliminary 2.9 percent advance.