By Jason Clenfield and Tatsuo Ito
Sept. 11 (Bloomberg) -- Japan’s economy grew less than initially estimated in the second quarter as companies cut spending and stockpile levels fell.
Gross domestic product expanded at an annual 2.3 percent pace in the three months ended June 30, following a 12.4 percent contraction in the first quarter, the Cabinet Office said in Tokyo. Economists surveyed by Bloomberg News forecast a 3.7 percent expansion, unchanged from the preliminary report.
The recovery is already showing signs of slowing. The Democratic Party of Japan, which last month unseated a government that’s ruled for 55 years, inherits an economy where more than a third of the country’s factory capacity sits idle and unemployment has surged to a record high.
“This is a weak recovery,” said Tetsuro Sugiura, chief economist at Mizuho Research Institute in Tokyo. “Consumers and business are anxious about the outlook.”
The yen traded at 91.70 per dollar at 8:59 a.m. in Tokyo from 91.65 before the report was published.
Last quarter’s growth was led by a bounce in exports and consumer spending. Manufacturers such as Nippon Steel Corp. saw orders rise as customers rebuilt stockpiles depleted during the recession, while construction equipment-makers like Komatsu Ltd. befitted from China’s 4 trillion yuan ($586 billion) in stimulus spending. Consumers also spent more on cars and electronics, as incentives introduced by the outgoing Liberal Democratic Party took effect.
“The economy has gotten a boost from the inventory cycle, stimulus packages at home and abroad, and pent-up demand,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “These factors will fade probably by year end.”
Reports since the second quarter suggest the economy is slowing. Gains in industrial production decelerated for a fourth month in July, exports plunged 36.5 percent and the jobless rate jumped to 5.7 percent, the worst reading since 1953. Machinery orders, an indicator of capital spending, tumbled 9.3 percent.
Toyota Motor Corp., which estimates it will make about a third fewer cars this year than it has the capacity to build, said last month it will close an assembly line at its Takaoka plant in central Japan. The carmaker plans to cut capital spending by 36 percent in the year ending March 31.
Declining corporate profits and falling tax revenues means that the DPJ, which won national elections on Aug. 30, will have more difficulty funding its promises to beef up the country’s safety net and encourage more consumer spending through childcare handouts and abolishing highway tolls. The party pledged not to increase new bond sales to avoid expanding a debt burden that’s the largest in the industrialized world.
“They’re saying they’ll finance their projects by reshuffling the budget,” said BNP’s Shiraishi. “Under the best of circumstances that wouldn’t be easy.”