Business
* Q2 GDP +0.3 pct qtr/qtr vs forecast +0.6 pct * Consumption up 0.1 pct, external demand detracts from GDP * Q2 annualised growth 1.4 pct vs U.S. growth of 1.5 pct * Global slowdown, strong yen cloud economic outlook * BOJ, govt signal readiness to add stimulus if necessary By Stanley White and Leika Kihara TOKYO, Aug 13 (Reuters) - Japan's economy expanded just 0.3percent in April-June, half the pace expected, raising doubtsabout the strength of the recovery as a rebound in consumerspending loses momentum and Europe's debt crisis weighs onworldwide demand. The cabinet figures on Monday provide fresh evidence of aglobal slowdown as growth in the United States, Europe and Chinaflounders, raising expectations in financial markets thatpolicymakers will take action to lift the world economy. Economists had expected Japan's growth to pull back to 0.6percent after a strong expansion of 1.3 percent in the firstquarter when government subsidies on low-emission cars droveprivate consumption up at its fastest pace in three years. But private consumption was weaker than expected andexports, traditionally the driver of Japan's economic growth,shaved 0.1 percentage point off of the quarter's gross domesticproduct. "As domestic demand is losing momentum and exports willlikely weaken further due to Europe's debt trouble, there is apossibility that Japan will go back into an economic lull inJuly-September," said Yuichi Kodama, chief economist at MeijiYasuda Life Insurance in Tokyo. Policymakers expect reconstruction spending after lastyear's earthquake and tsunami to support economic activity untilearly next year. But global headwinds and the yen's strength are raisingincreasing worries among policymakers and companies about theprospects for already weakening exports. Just last week, Bank of Japan Governor Masaaki Shirakawawarned the fallout from Europe's debt crisis was broadening andmay delay a pickup in key markets for Japanese goods like theUnited States and China. Analysts have slashed their forecasts for Japan's factoryoutput, which is closely tied to the country's exports, as theslowdown in the global economy becomes more pronounced. "Europe's sovereign debt crisis remains a major risk toJapan and the global economy," said Tatsushi Shikano, senioreconomist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. "The Bank of Japan will likely take a wait-and-see stancebut it could act again next month if financial turmoil andfurther monetary easing by the U.S. Federal Reserve prompt aspike in the yen, threatening Japanese exporters' earnings andthe economy's recovery prospects," Shikano said. SLOWDOWN EYED Despite the slowdown, April-June growth of 0.3 percent isclose to Japan's average quarterly growth over the last decadeof 0.24 percent, suggesting a pull back to its long-term trend. Indeed, Economics Minister Motohisa Furukawa said Japan'seconomy was growing at a healthy pace. The slowdown was largelya reaction to unusually strong growth in the previous quarter,he said. "Japan's economy continues in an uptrend led by domesticdemand," Furukawa told a news conference, although he added thatthe government would consider a supplementary budget to supportthe economy "if necessary". On an annualised basis, the world's third-largest economygrew 1.4 percent in the April-June quarter, less that the median2.5 percent forecast and slightly below the 1.5 percentannualised pace of the United States. The U.S. economy hadexpanded at a 2.0 percent pace in the January-March quarter. China's economy grew in the second quarter 7.6 percent froma year earlier, down from 8.1 percent in the first quarter. Theeuro zone is expected to report on Tuesday that the bloc'seconomy shrank 0.2 percent in April-to-June compared with theprevious quarter. Growth in Japan's private consumption, which makes up about60 percent of the economy, slowed to just 0.1 p ercent from 1.2percent in the previous quarter. The sharp slowdown, well short of a median estimate of 0.3percent, cast doubt on whether consumption will sustain itsmomentum once the boost from stimulus measures fades. Subsidieson low-emission cars are set to run out in August. Worries over the economic outlook are already taking a tollon consumer confidence, which worsened in July from June. It could take a further blow after parliament last weekapproved plans to double Japan's 5-percent consumption tax by2015. Critics argue the higher tax will dampen domesticconsumption, which contributed 0.4 percentage point to GDP inthe latest figures. At the BOJ, a growing number of officials had increasingdoubts about the strength of Japan's recovery even beforeMonday's GDP figures due to the global fallout to the euro areadebt crisis. "Europe's sovereign debt woes are already having a hugeimpact on the global economy," Shirakawa told a news conferencelast week after the central bank left monetary policy unchanged. "If the situation worsens further, it could trigger marketturmoil or further cool global growth," he said in a signal ofthe central bank readiness to further ease policy if economicconditions deteriorate. Several exporters, including electronics giant Sony Corp and carmaker Nissan Motor Corp, say the yen'sstrength is hitting the bottom line. Nissan said the yen cut 25.7 billion yen ($328 million) offits quarterly operating profit of 120.7 billion yen. The currency has become a safe haven from the debt woes ofEurope and the United States. It closed out the April-Junequarter at 79.77 per dollar versus 82.79 in the previous quarterand was trading on Monday around 78.27.
