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Japan's economy accelerates slower, sales tax increase approaches

Japan's economy accelerates slower, sales tax increase approaches
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Dashing hopes of a better performance, Japan’s economic growth slowed more than expected in the second quarter of this year, its government debt continuing to swell. Although GDP in the world’s third-largest economy did rise faster than in the number one – the United States – Tokyo’s latest published figures were disappointing.

Government data showed a third straight quarter of expansion – by an annualised 2.6 percent in April-June – but was one percent below market expectations. GDP rose by 0.6 percent, compared to a first quarter 0.9 percent.

Top coalition party officials recently confirmed that Prime Minister Shinzo Abe still plans to go ahead with a scheduled sales tax increase over which his government is divided.

Abe said: “I believe that the economy is continuing on its upward path. I’ll continue to take all possible care with the economy… including implementation of further growth strategies in the autumn.”

Japan must deal with the heaviest debt of all industrialised powers: 245 percent of its total annual economic production.

Abe has pledged to engineer savings of 62 billion euros in the next two years.

That puts the role of household consumption in the economy at risk – robust spending on food, travel and consumer electronics.

The prospect of raising sales tax from five to eight percent next spring, and then possibly to ten percent, brought a warning from economist Yoshito Sakakibara:

“The current plan of the three percentage point hike could be too much burden for households, erosion to the real disposable income. We don’t think this negative impact should be underestimated.”

The premier is to decide this October on how to move ahead on the multi-party tax rise agreement reached last year, and also on offering tax breaks to boost business investment.

Japan’s world economic ranking, having been surpassed by China, is expected to count as fifth within a few decades, as India and Brazil move up.

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