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Japan GDP grows faster than expected in Q4 - UPDATE

Thu, Feb 14 2008, 01:26 GMT
http://www.afxnews.com

TOKYO (Thomson Financial) - The Japanese economy grew at a much faster than expected clip in the fourth quarter, buoyed by brisk capital investment and consumer spending as well as increased exports to emerging markets like China, the Cabinet Office said Thursday.

Japan's gross domestic product rose 0.9 percent in real terms in the fourth quarter, or at an annualized rate of 3.7 percent, the government said. It was the second straight quarter of growth for the world's second-largest economy.

The growth was well ahead of market expectations. Ten economists polled by Thomson Financial News were looking at 0.4 percent expansion for the quarter and an annualized pace of 1.5 percent, on average.

"The October-December quarter registered strikingly strong growth as private demand, as well as net exports and public demand more than offset the slump in housing investments," said Hiroki Owaki, senior economist at the Cabinet Office.

GDP for the third quarter was revised down to show a rise of 0.3 percent compared to the 0.4 percent growth reported in December. Annualized, GDP grew 1.3 percent, slower than the 1.5 percent growth announced earlier.

In nominal terms, or before adjusting for inflation, GDP rose 0.3 percent in the fourth quarter and at an annualized pace of 1.2 percent.

Domestic demand added 0.5 percentage point to overall growth, thanks to robust spending by

Japanese companies and households.

Consumer spending makes up 55 percent of Japan's GDP and non-residential investment, which is nearly equal to corporate capital spending, accounts for 15 percent.

Non-residential investment rose 2.9 percent, its fastest growth since April-June 2006 when it surged by 5.1 percent. In the third quarter, it rose 1.1 percent.

"Spending on auto, general machineries, including hydraulic shovel makers, and business software sectors was solid," Owaki said.

Private consumption rose a modest 0.2 percent as consumers continued to spend on cars,

heating oil, and airconditioners.

"Although private consumption grew for the fifth straight quarter, the pace of growth was slow," Owaki said.

Brisk exports

Elsewhere, net exports -- or the difference between exports and imports -- pushed up GDP by 0.4 percentage point, after adding 0.5 percentage point in the previous quarter.

"Exports to various regions were brisk, including shipments to the US, EU, Asia and the Middle East," Owaki said.

Public demand added 0.1 percentage point to growth, its first positive contribution in three quarters, due to higher medical cost amid the outbreak of flu.

But housing investment fell 9.1 percent during the quarter, the biggest decline since April-June 1997 when it tumbled by 11.2 percent, as the sector continued to reel from tighter building

regulations implemented since last June.

Housing construction in Japan fell at double-digit pace for the sixth straight month in December

after the government made the certification of building blueprints stricter following revelations that a

loose screening process allowed construction plans with fake anti-seismic data to be approved.

For the current fiscal year ending next month, the Cabinet Office estimates GDP can expand by 1.3 percent as the government had forecast even if the economy contracts by 1.6 percent in the current quarter.

Meanwhile, the GDP deflator showed Japan is making little progress in its battle against deflation.

The broadest gauge of deflation was down by 1.3 percent in the quarter from a year earlier. It was the 39th straight quarterly fall and bigger than the 0.6 percent drop in July-September due

largely to declines in the export deflator.

But the domestic demand deflator rose 0.1 percent in the quarter, the first rise since

July-September 2006.

(1 US dollar = 108.19 yen)

yasuhiko.seki@thomson.com

--- by Yasuhiko Seki ---

yas/ms

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