Monday, 11 June 2012

Japanese economy slows after strong first quarter growth

Japan's economy made a strong start to 2012 but that strength appears to have dissipated in recent months.

Last week's updated reading on the economy in the first three months of the year showed that the Japanese economy grew 1.2 percent in that quarter. On an annualised basis, the economy grew 4.7 percent.

The strong growth owed much to government spending, which increased 1.3 percent from the previous quarter as a result of reconstruction activity following last year's earthquake and tsunami. However, consumer spending was also strong, growing by 1.2 percent. Net exports, a major growth driver in the past but an inconsistent performer in recent years, also contributed 0.1 percentage point to growth.

However, after the first quarter, the Japanese economy may have lost momentum.

Data last week showed that the preliminary reading of the composite index of coincident economic indicators fell to 96.5 in April from 96.7 in March. The index of leading economic indicators also fell to 95.1 from 96.4.

The findings from the Cabinet Office's economy watchers survey released last week also indicated that the economy weakened in the second quarter. The diffusion index for current conditions fell to 47.2 in May from 50.9 in April and 51.8 in March. The May reading for the future conditions index was 48.1, down from 50.9 in April and 49.7 in March.

Purchasing managers surveys in Japan painted the same picture. Markit's composite output index for Japan hit a record 53.2 in March but fell to 51.3 in April and 50.1 in May. The manufacturing PMI was unchanged at 50.7 in May after having fallen in April from 51.1 in March. However, the services business activity index fell to 49.8 in May from 51.0 in April and 53.7 in March.

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