Earlier in the week I erroneously suggested that fourth quarter 2002 Japan GDP had contracted. This turns out to have been a mistake, the published figures are in fact better than the forecasts, but that is about the limit of the good news. In particular the deflation that has plagued the economy for three years now seems to be getting worse. The GDP deflator, the broadest gauge of price changes in the economy, came in at minus 2.2 per cent, its lowest level in two years
The Japanese economy grew in the last quarter of the year, defying forecasts of a contraction and fuelling hopes that the economy has finally embarked on a modest expansion track. Real gross domestic product in the October-December quarter increased 0.5 per cent, quarter-on-quarter, or 2 per cent annualised, marking the country's fourth consecutive quarter of growth. The figure astounded economists, who were forecasting the economy to contract by as much as minus 1.2 per cent on an annual basis. "On the surface, it's a pretty shocking result, driven by technical results," said Ryo Hino, economist at JP Morgan. "But it doesn't change the picture at all - we're still clearly in the midst of a slowdown." Economists said the single biggest surprise was an increase in private consumption, which was expected to fall sharply as households reined in their spending in the last few months of the year in line with a deep cut in winter bonuses. Nonetheless, private consumption increased 0.1 per cent, quarter-on-quarter; consumer spending makes up more than half of GDP. "The strength of the GDP data is very hard to reconcile with the weakness of most other data series during the quarter," said Peter Morgan at HSBC in Tokyo. "It should be noted that growth slowed further from the rapid pace of the second quarter, and a decline cannot be ruled out for the first quarter of the year."
Source: Financial Times