August 7, 2015 / 7:42 AM / 4 years ago

Japan's economy probably shrank in second quarter on weak exports, private spending

TOKYO (Reuters) - Japan’s economy probably shrank in April-June due to weak exports and floundering consumer spending, a Reuters poll showed, though the central bank stuck to its view on Friday that activity would improve later in the year.

People cross a street at the Tokyo's Akihabara shopping district, Japan, May 19, 2015. REUTERS/Yuya Shino

The world’s third-largest economy likely shrank at an annualized rate of 1.9 percent in the second quarter, the median forecast in the poll of 21 economists showed, after expanding by 3.9 percent in the first quarter.

That would translate into contraction of 0.5 percent from the previous quarter.

The latest forecast was more pessimistic than a similar poll just a few weeks ago, in which the median forecast was for annualized growth of 0.7 percent.

While growth is expected to rebound in the current quarter, some analysts warn that sluggish demand in China and tame wage growth at home will keep any pick-up modest.

“Worrying factors remain for July-September,” said an analyst at SMBC Nikko Securities in the poll.

“An adverse impact from China’s economic slowdown will likely continue, which is expected to drag down exports,” he said.

He did not rule out a possibility that the economy may contract for a second straight quarter in July-September.

The Bank of Japan maintained its massive stimulus program and upbeat view of the economy on Friday, unfazed by recent batch of weak data that clouded the prospects for hitting its ambitious 2 percent inflation target.

BOJ Governor Haruhiko Kuroda said consumer spending may have bounced back in July, while exports will gradually recover.

Among key components for the GDP, private consumption, which accounts for about 60 percent of the economy, is forecast to show a quarterly fall of 0.4 percent in April-June, the first fall in four quarters, according to the poll.

Capital spending is expected to show a 0.3 percent quarterly fall, following a 2.7 percent gain in the previous quarter and marking the first fall in four quarters.

External demand probably shaved 0.3 percent point off GDP growth in the second quarter, after it trimmed 0.2 percent point off GDP in the previous quarter.

The Cabinet Office will announce the GDP data at 8:50 a.m. on August 17 (2350 GMT August 16).

Separately, the nation’s leading indicator of capital spending probably fell 5.6 percent in June from May, its first decline in four months.

From a year earlier, core machinery orders likely rose 16.4 percent. The highly volatile data series is regarded as an indicator of capital spending in the coming six to nine months.

“Companies’ willingness for capital spending remains solid and there is no change to our view that the machinery orders are on the rise,” said an economist at Mizuho Research Institute in our poll.

The Cabinet Office will announce the machinery orders at 8:50 a.m. on Thursday (2350 GMT, Wednesday).

Separate data will show the current account surplus probably stood at 773.6 billion yen ($6.20 billion) in June, the 12th straight monthly current account surplus, after a 1.88 trillion yen surplus in May.

The poll found the corporate goods price index (CGPI) is seen to have fallen 2.9 percent in July from a year ago after a 2.4 percent fall in June.

The finance ministry will announce the current account data on Monday and the Bank of Japan will release CGPI on Wednesday.

Editing by Kim Coghill

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