Growth slowdown rattles Japanese efforts to recover

 

Japanese prime minister Shinzo Abe’s plans to revive the world’s third-biggest economy suffered their first setback today amid faltering growth.

Abe has embarked on a bold strategy to shake Japan out of a two-decade battle against deflation with a major public investment programme and money-printing from the Bank of Japan to hit a new 2% inflation target.

But official figures showed the economy managed 0.6% growth between April and June — slower than the previous quarter and below expectations. Debt has also hit the quadrillion — thousand trillion — yen (£6.9 trillion) mark as the nation seeks a strong enough recovery to begin tackling its debt burden. The figures showed the strongest contribution to growth coming from public spending and exports as a weaker yen boosts trading conditions and the value of overseas profits for Japan’s biggest companies.

But business investment spending slipped 0.1% in the quarter, raising doubts over the recovery’s foundations. Abe also faces a fight to reform an overly bureaucratic economy — the “third arrow” of his reform programme — through encouraging foreign investment, and boosting immigration to counter an ageing population.

He wants to double the amount of direct investment in Japan by foreign companies and open up trade, but he has also pledged to protect a heavily subsidised farming industry from which his Liberal Democratic Party draws strong support.

Rob Wood, chief UK economist at Berenberg, said: “These figures show the first two arrows are coming through in consumer and government spending but there are few signs yet of a recovery becoming sustainable. The economy needs serious structural reform because of an ageing population and the signs are it is not prepared for that.”

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