Japan's economy probably rebounded last quarter from a contraction three months earlier, led by exports and business investment. The pace of expansion is likely to slow in coming months, economists said.
The world's second-largest economy expanded an annualized 1.9 percent in the three months ended Sept. 30 from a 1.2 percent decline in the previous period, according to the median estimate of 25 economists surveyed by Bloomberg News. The Cabinet Office will release gross domestic product figures for the third quarter on Nov. 13 at 8:50 a.m. in Tokyo.
The Bank of Japan and economists last week cut their growth forecasts for this year, as new building-permit regulations sent housing starts to a four-decade low, falling wages damp spending at home and a U.S. housing recession threatens exports. A slowdown may make it harder for the central bank to raise interest rates, the lowest among major economies, this year.
``This is a very small rebound,'' said Yoshimasa Maruyama, an economist at BNP Paribas Securities Japan Ltd. ``There isn't going to be anything to drive growth, with the export boost only temporary and the consumer hardly strong enough to pull the economy together.''
Faster expansion in Asia bolstered sales of Japanese automobiles and electronics overseas last quarter. Net exports, or the difference between exports and imports, added 0.5 percentage point to growth, driving the expansion.
Capital spending, the main culprit for the contraction in the second quarter, is expected to rise 1.7 percent. Domestic demand failed to contribute at all, economists said.
Reports show the economy is losing steam. The Cabinet Office said yesterday that the leading index, a key gauge of the direction of the economy, fell to the lowest level in a decade. The Bank of Japan last week cut its growth estimate for the year ending March to 1.8 percent from 2.1 percent, citing the drop in housing starts.
Exports grew at their slowest pace in two years in September and industrial production slid from a record.
Pioneer Corp., Japan's third-largest maker of plasma televisions, last week scrapped plans to build a new factory, joining Hitachi Ltd. in scaling back manufacturing of the TVs.
Demand at home isn't showing signs of picking up. Wages have fallen for eight of the past nine months and summer bonuses, which amount to several months' salary, slid for the first time in three years. Consumer spending, which makes up more than half of the economy, was probably flat last quarter, economists said.
Housing starts fell to their lowest level in four decades in September after the government enforced stricter rules for obtaining building permits. The Land Ministry, which implemented the new regulations on June 20 after an architect fabricated earthquake-resistance data in 2005, said last week it would relax them after industry criticism that they were too onerous.
Credit Suisse Group and Macquarie Securities Ltd. both cut their GDP forecasts twice in the past month because of the housing slump. Housing starts probably plunged 10 percent from the previous quarter, economists said, more than three times the decline in the second quarter.
Slower growth may prompt the central bank to keep interest rates on hold for 2007. Bank of Japan Governor Toshihiko Fukui and his policy board will conclude a two-day meeting the day the GDP report is released. None of 25 economists surveyed expect a rate increase.
``The plunge in housing will have more negative effects than the BOJ expects as it will spread to capital spending, factory output and the unemployment rate,'' said Hiromichi Shirakawa, chief Japan economist at Credit Suisse. Shirakawa last week lowered his growth estimate to 1.3 percent for the year ending March. In July, he forecast a 2.9 percent expansion.
Corporate investment may also be moderating. A report tomorrow will probably show machinery orders, a key indicator of companies' spending plans, fell for a second month in September.
``The weakness of housing investment in an environment where domestic demand is already weak is a concern,'' said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo. ``We have yet to determine whether the slump in housing is temporary or not.''
The GDP figures are preliminary and will be revised after the Ministry of Finance releases its quarterly survey on corporate activity on Dec. 3. The revised numbers are scheduled for release on Dec. 7. ( Bloomberg )