Japan’s economy was outpaced by China in the second quarter in nominal terms, data showed yesterday, as sharply weaker than expected growth triggered fresh fears that the global recovery is losing steam.
As cooling exports and flat domestic consumption hit Japan’s growth in April-June, the data pointed to the looming prospect of China overtaking Japan as the world’s second-largest economy.
Japan’s real gross domestic product grew by an annualised 0.4 per cent in the quarter, down from a revised 4.4 per cent in the previous three months, missing forecasts of 2.3 per cent growth in a Dow Jones Newswires economists’ poll.
On a quarterly basis, growth was at 0.1 per cent, down from a revised 1.1 per cent in the previous quarter.
The figures pose a challenge for Prime Minister Naoto Kan’s government, which must balance a fragile economy with an
agenda focused on cutting the industrialised world’s biggest public debt, at nearly 200 per cent of GDP.
However, yesterday’s data “make it even less likely that the government will move quickly to tackle the huge public debt,” said Julian Jessop of Capital Economics in a research note.
Private consumption, a key driver of the economy, was flat after growing 0.5 per cent in the previous quarter.
Net exports contributed to 0.3 per cent of GDP from 0.6 per cent previously, fuelling fears of a global economic slowdown.
Many analysts say 2010 is the year China will replace Japan as the world’s second largest economy, with data showing that while Japan stayed ahead of its Asian rival in the first half, it fell behind in April-June.
On a nominal basis, Japan’s second quarter GDP was smaller than China’s, at $1.288 trillion compared with $1.336 trillion, according to the government.
If the trend continues, as many expect, China will this year become the world’s number two economy, just behind the US – taking the title Japan has held for 40 years and underscoring its emergence as an economic power.
In just three decades since opening its doors to foreign investment, China has leapfrogged Britain, France and Germany on its economic ascent and has won developing countries a bigger say in the World Bank and International Monetary Fund.
Whereas despite it crawling out of a severe year-long recession in 2009, Japan’s recovery remains fragile with deflation, high public debt and weak domestic demand all concerns for policymakers.