Japan's economy grew at a much weaker than expected pace and was overshadowed by China in the second quarter, data showed today, amid further signs the global recovery is losing steam.
With cooling exports and flat domestic consumption hitting Japan's growth in April-June, the data missed market estimates and pointed to the looming prospect of China overtaking Japan as the world's second-largest economy.
Japan slipped behind its Asian rival in the second quarter on nominal terms, government data showed, while remaining just ahead of China in the first half.
Japan's real gross domestic product grew by an annualised 0.4% in the quarter, down from a revised 4.4% in the previous three months and missing forecasts of 2.3%. On a quarterly basis, growth was at 0.1%, down from a revised 1.1% 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 the need to cut the industrialised world's biggest public debt, at nearly 200% of GDP.
Private consumption, a key driver of the economy, was flat after growing 0.5% in the previous quarter. Net exports contributed to 0.3% of GDP from 0.6% previously.
Many analysts say 2010 is the year China will replace Japan as the world's second-largest economy, with government data showing that while Japan stayed ahead of its Asian rival in the first half, it fell behind in April-June quarter.
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. However, Japan's gross domestic product was at $2.578 trillion compared to China's $2.532 trillion in the first half, the cabinet office said in a preliminary estimate.
In June, Japan's unemployment rate edged higher to 5.3%, while production of cars and electronic gadgets surprisingly slipped, amid signs that an export-driven recovery may be stalling.
Shipments of cars, gadgets and components have been crucial in offsetting weaker demand at home, but concern is mounting that Japan may be hit by Beijing's efforts to cool China's economy, as well as fragile euro zone and US demand.
Deflation and weak domestic demand have long burdened Japan, as consumers tend to put off purchases in the hope of further price falls. The planned expiry in September of government incentives to purchase cars may also weigh on production for the domestic market just as the overseas climate worsens, analysts say.
Japan's exporters are threatened by a slowdown overseas, cooling a sector that is also anxious about the strength of the yen, which recently touched a 15-year high against the dollar.
