September 1, 2014 / 12:46 AM / 5 years ago

Japan second-quarter GDP seen little changed after MOF capex data

TOKYO (Reuters) - Japanese firms raised capital spending in April-June from a year earlier for a fourth consecutive quarter, but a quarter-on-quarter decline suggests revised data will likely confirm the economy’s deepest contraction since the March 2011 disaster.

The 3.0 percent annual rise followed a 7.4 percent annual increase in the previous three months, Ministry of Finance data showed. The quarter-on-quarter seasonally adjusted figure, which excludes software, showed a 1.8 percent decline.

The data suggests Japan’s gross domestic product figures are likely to be little changed from the preliminary estimate when revised GDP data is due on Sept. 8. Monday’s data will be used to re-calculate the capital expenditure component of GDP data.

The capital spending data follows a recent batch of weak indicators including industrial output and household spending, which cast doubt on the strength of recovery from April’s sales tax hike, and the Bank of Japan’s rosy economic outlook.

“Looking at the quarter-on-quarter fall, revised GDP data will probably come in line with an initial estimate,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Compared with household spending and housing investment, capital spending holds relatively firm although it is going through some adjustments. Given a murky economic outlook, however, companies could cut their capital spending plans.”

The MOF data showed sales at Japanese firms rose 1.1 percent in April-June from the same quarter a year ago, and recurring profits rose 4.5 percent, slowing sharply from the previous few quarters, reflecting decline in demand after the sales tax hike.

Any weakness in capital spending could threaten an intended economic recovery driven by a virtuous cycle of production boosting wages, household income and spending, in turn raising doubts over the vigor of an expected rebound in the current quarter.

Weak readings could fuel speculation that Prime Minister Shinzo Abe may delay a second sales tax rise to 10 percent next year needed to curb Japan’s runaway debt, or roll out a fresh stimulus package at the cost of fiscal consolidation.

Abe is due to decide in December whether to go ahead with the second sales tax rise in October 2015, after assessing the third-quarter GDP data and other forthcoming indicators.

A preliminary government estimate showed that the economy shrank an annualized 6.8 percent in the second quarter, more than erasing the 6.1 percent first-quarter surge in the run-up to the sales tax hike to 8 percent from 5 percent on April 1.

On the quarter, the economy contracted 1.7 percent. In preliminary GDP data, capital spending dropped 2.5 percent in the second quarter, marking the first decline in five quarters.

Analysts as well as policymakers expect that growth will rebound in the current quarter, though some warn that the recovery may falter later this year if the tax-hike effect is prolonged and exports fail to emerge from the doldrums.

Editing by Eric Meijer

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