Surprise surge in Japanese growth rate

The Japanese economy grew at the fastest rate for five years in the final quarter of 1995, in the clearest signal so far that recovery is taking root. A surprise increase in consumer spending accounted for most of the gain.

Separate figures from the US showed an unexpected surge in new housebuilding in February despite the blizzards. This further sign that growth is reviving briefly boosted shares above Monday's record level, now that financial markets have got over the shock of realising an interest rate reduction is unlikely.

The 0.9 per cent rise in Japan's GDP in the fourth quarter took analysts by surprise. Monthly figures had pointed to more subdued growth.

With revisions to earlier quarters, the country's national output has expanded by more than 2 per cent in nine months. It grew 2.5 per cent in the year to the fourth quarter.

Eric Fishwick, an analyst at the Industrial Bank of Japan, said many economists would now be raising their forecasts for the economy in 1996. "The fact the recovery seems to have become more broadly based means some of the risks overhanging the economy could have diminished. It is the quality rather than the quantity of the growth which is significant."\

Some economists remained very cautious. Graham Turner at Tokai Bank said the spending growth was achieved by heavy discounting. "Although the growth is encouraging, a lot of things still do not bode too well for the future," he said.

These include the hangover of bad debts afflicting the financial system, an increase in the number of bankruptcies and confidence still near rock-bottom. Most experts think the Bank of Japan will need to run its extremely low interest rate policy for at least another year.

Government spending on public works rose 6.9 per cent in the last quarter of last year, but the biggest contribution to the rise in GDP came from a 0.4 per cent increase in consumer spending. Housing investment surged 7.2 per cent.

In the US, housing startsclimbed 3 per cent in February to an annual level of 1.49 million units. They reached a level 12.7 per cent higher than a year earlier as buyers rushed to take advantage of low mortgage rates.

During recent weeks mortgage rates have climbed, to 7.83 per cent from an average of 7.08 per cent in February. Building permits have settled at a lower level than new starts, suggesting housebuilding could fall back later. But the figure cheered economists. ''Once people buy and build homes they have to buy appliances and furnish them," said Waldo Best at BZW.

Comment, page 17

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