March 3, 2014 / 1:31 AM / 6 years ago

Downward Q4 GDP revision seen after modest Japan capex growth

TOKYO (Reuters) - Japanese companies raised spending on plant and equipment in October-December for a second straight quarter, but rather modestly, suggesting firms were wary of boosting investment in the face of an uncertain economic outlook.

A man works inside a factory in Tokyo August 12, 2013. REUTERS/Yuya Shino

The 4.0 percent year-on-year rise in capital spending followed a 1.5 percent increase in the previous quarter, which was the first increase in four quarters, Ministry of Finance (MOF) data showed on Monday.

Compared with the previous quarter, however, capital spending excluding software declined 0.3 percent on a seasonally adjusted basis, down for a second straight quarter.

The data suggests Japan’s fourth quarter growth is likely to be revised down slightly from an initial estimate, as this data will be used to calculate revised gross domestic product (GDP) figures due on March 10, some analysts said.

“Capital spending remains sluggish particularly at manufacturers, probably reflecting some concerns about any impact of a sales tax hike (in April),” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

“It will likely lead to a downward revision to the fourth-quarter GDP data. Growth may accelerate in the first quarter of this year, but I’m not as optimistic about the outlook after April as the government and the central bank.”

A MOF official said the economy is on track for a moderate recovery backed by household consumption and business spending while exports recover and government policy steps provide support.

Preliminary data showed Japan’s economy grew a weaker-than-expected 0.3 percent in October-December from the previous quarter, or an annual clip of 1.0 percent, as exports weakened, capital spending and private consumption disappointed.

Capital spending has been a weak link in the world’s third largest economy.

Prime Minister Shinzo Abe is struggling to spur business investment and wage increases at many companies, which remain unconvinced that his reflationary policies will sustain growth.

Monday’s data also showed that companies’ recurring profits rose 26.6 percent in October-December from the same period a year before, up for an eighth consecutive quarter.

Companies’ sales rose 3.8 percent in October-December from a year earlier, a second straight quarter of gains, it showed.

Japan’s economy, after leading the Group of Seven powers in the first half of 2013 with annualized growth above 4 percent, skidded to 1 percent growth in the second half, hurt by weakness in exports, private consumption and capital spending.

Economists expect growth to accelerate in the current quarter as consumers rush to buy goods before a national sales tax is raised to 8 percent from the current 5 percent in April.

Editing by Eric Meijer

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