Japan says GDP growth weaker

Koizumi celebrates his win, which should see him become the 11th leader in 13 years

In this story: A drop from March Consumer and business confidence down RELATED STORIES

By Staff and wire reports

TOKYO, Japan -- Japan's government on Wednesday dropped its figure for economic growth for the three months through December.

The figures illustrate the significant challenge ahead of newly elected Liberal Democratic Party president Junichiro Koizumi.

Koizumi, 59, is expected to take over as prime minister Thursday after formal parliamentary approval.

A drop from March

Japan's gross domestic product grew at 0.7 percent for the quarter, not the 0.8 percent originally announced in March.

Net exports and capital spending were slightly weaker, the government's Cabinet office said.

Despite the revision, Japan should still hit its 1.2 percent growth target for the fiscal year through March 31, the office said.

James Malcolm, senior economist at J.P. Morgan, agreed the target is "eminently achievable." But it signals that Japan's already moribund economy is slowing rapidly this year.

GDP grew at 1.7 percent in calendar 2000, the government reiterated Tuesday. Economists' forecasts for this calendar year point to a significant dropoff in growth.

Malcolm expects growth to slump to 0.7 percent, "with risks still remaining on the downside." Few experts expect much beyond 1 percent growth.

Consumer and business confidence down

Economists say they are unsure how the government's GDP figures are compiled and fault them for being too volatile and coming out late. But other recent data also show a downward drift.

Consumer confidence has eroded significantly. That suggests an impending crash in Japanese consumer spending, which accounts for 55 percent of the economy and has held up relatively well.

The U.S. slowdown has already hurt demand for Japanese products. Business confidence is low, which has led to slower commercial and industrial spending.

A survey released by the government's Economic and Social Research Institute on Tuesday showed business sentiment hit minus 31, its worst level since the last quarter of 1998.

Businesses said they expect to cut capital expenditures by 5.5 percent in the fiscal year through March 2002.

There is some chance Koizumi's high public popularity can swing sentiment in Japan. But he faces a long battle in tackling the deep-rooted problems facing its economy.

Koizumi has said he wants to tackle structural and fiscal reform. But those changes will mean considerable short-term pain for Japanese industry and its banks.

Analysts also want to see what kind of cabinet he appoints. Past reformers have been swallowed by the more hidebound elements of the LDP.

And market watchers are keen to get more specifics of his reform plans. Koizumi has so far been cannily vague.

"The general assessment should be a little more positive relative to the other candidates," Malcolm said. "But we still have no real details on his near-term economic plans."

Reuters contributed to this report.

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