Feb 16, 2015 4:02 AM

Q&A: What's next for Japan economy after exiting recession

The Associated Press

TOKYO (AP) Japan emerged from recession last quarter, but the rebound in the world's third-largest economy was much weaker than economists had forecast. Questions and answers about what's next and the possible implications for global growth.


The economy grew quickly at the beginning of 2014 before a sales tax hike and then contracted for two quarters, suffering its second recession in five years. In the fourth quarter, it regained momentum to grow at a 2.2 percent annualized rate. But that was much weaker than the growth of about 4 percent expected by most economists, showing the reluctance of consumers and businesses to spend and invest.


Over the past two years, Japan's government has undertaken unprecedented stimulus efforts that have yet to produce convincing results and were also set back by the April tax hike. Recent data are mixed. Demand for workers and machinery has increased and exports have risen. But the private demand that accounts for about two-thirds of growth remains weak, suggesting the economy will be sluggish this year after flat-lining in 2014. Some estimates put growth at below 0.5 percent for this year and as low as 0.1 percent.


Japan is a major market for exporters in Asia, the Middle East and elsewhere. If consumer demand is strong in Japan it should mean more sales of consumer goods and commodities, since this resource-scarce country imports almost all of the oil and gas it consumes. But there's not much scope for upside from Japan in the near term. Weakness in its economy was a reason for recent downgrades to IMF and World Bank global growth forecasts. Research by Nomura says there is upside for the world economy, Asia in particular, if Japan's stimulus efforts are successful.


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