Japan's government inched toward agreeing new stimulus measures that could be worth $30 billion on Monday as economic growth is likely to slow next year due to sluggish personal spending and rising inventories. Economists doubt whether that amount will be enough to push growth up significantly as the Democratic Party-led government will likely fund the stimulus with money cut from a budget compiled by the previous administration.
Japan's massive national debt means the Democrats don't have the leeway to spend much more. The economy grew 1.2 percent in the third quarter, nearly double the forecast and the fastest pace in more than two years, but that was partly due to stimulus that the previous government enacted. The better-than-expected headline figure also failed to mask signs of weakness in private consumption and factory output.
Top government spokesman Hirofumi Hirano told reporters cabinet ministers will discuss fiscal policy on Tuesday, but that won't lead to an announcement on an extra budget. The government is likely to declare on Friday the economy has returned to deflation, the Nikkei newspaper reported, as the domestic demand deflator fell 2.6 percent in the third quarter from a year earlier, the largest drop in 51 years.
Japan's gross domestic product (GDP) growth was much faster than the median estimate for 0.7 percent growth and was the largest gain since the first quarter of 2007. It compared with a revised 0.7 percent expansion in the second quarter of this year, which was the first growth in five quarters. A Reuters poll shows Japan's GDP is expected to slow to 0.1 percent growth in the first quarter next year as stimulus measures fade.
The United States and Europe have also emerged from recession but face the same challenge as Japan, namely how to combat weak job creation and downward pressure on prices after stimulus wears off. Private consumption rose 0.7 percent, better than a forecast for a 0.5 percent rise but slower than a 1.0 percent increase in the previous quarter. Domestic demand contributed 0.8 percentage point to growth, the first positive contribution in six quarters.
Capital expenditure rose 1.6 percent, the first gain in six quarters and faster than a 0.1 percent increase forecast by economists. In an ominous sign for manufacturing, inventories started to increase, contributing 0.4 percentage point to growth in the third quarter, the first positive contribution since the fourth quarter last year. Japan's exports rose 6.4 percent in the third quarter, matching their increase in the previous three months.
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