Japan retail sales show spending may be losing steam(69722)

Japan retail sales show spending may be losing steam

From: Reuters

Japan's retail sales in May rose at their slowest annual pace in four months in a sign that stimulus-driven consumption may be losing momentum as the export-led economic recovery is expected to moderate in the coming quarters.

Retail sales have been surging since the start of this year, helped by government subsidies for purchases of cars, electronics and other durable goods. But analysts warn this boost is starting to wane as such subsidies expire later this year, boding ill for the economic recovery.

A slowdown in consumer spending later this year could increase scrutiny of Prime Minister Naoto Kan's economic growth strategy, whose government is trying to appeal to voters before an upper house election on July 11 that it must win to smoothly pass bills into law.

"The slowdown in retail sales suggests the effect of (government) incentives on energy-efficient cars is peaking, and this is not good news for the overall economy's recovery that has so far been heavily dependent on stimulus," said Seiji Shiraishi, chief economist for Japan at HSBC Securities in Tokyo.

"Personal consumption made a considerable contribution to the economy's growth in the first quarter but not much contribution is expected in the second quarter, meaning overall growth will slow down as expected."

Retail sales rose 2.8 percent in May from a year earlier, the slowest pace since January. That followed a 4.9 percent rise in April, the fastest annual increase since March 1997, the Ministry of Economy, Trade and Industry said on Monday.

May's rise was less than the median estimate for a 4.6 percent gain.

Retail sales rose in May from a year earlier mostly because higher oil prices boosted the retail cost of fuel, a government official said.

The data also showed that sales of products that had been doing well because of government subsidies are starting to slow.

Vehicle sales rose 13.3 percent in May from a year earlier, slowing from 19.5 percent rises in the previous two months. Sales of machinery and equipment, which includes flat panel TVs, slowed to 5.8 percent growth from 13.8 percent in April.

Governments subsidies for some goods ended in March, while others expire in September and December.

Compared with the previous month, retails sales fell 2.0 percent on a seasonally-adjusted basis, the first decline since December.

Retail sales began rising on a year-on-year basis in January after having declined throughout 2009 in the aftermath of the global financial crisis.

Strong exports helped the world's No.2 economy grow 1.2 percent in January-March from the previous quarter, outpacing growth in the United States and the euro zone in the same period. Net exports contributed 0.7 percentage point to growth.

Personal consumption, which makes up 60 percent of the economy, grew 0.4 percent in the same quarter.

Economists polled by Reuters raised their growth estimates for the fiscal year to next March, though they expect growth to slow in April-June as the effect of government stimulus fades and global restocking of inventories runs its course.

They expect the world's No.2 economy to grow 2.5 percent in the fiscal year to next March, largely in line with government projections and more than the Bank of Japan's forecast.

The government has vowed to achieve an average 2 percent real growth over the next 10 years through its growth strategies. But analysts say this will be a tall order given that the economy grew a meagre 1.3 percent on average in the decade until the financial crisis in 2008 that led to the global recession.

Japan retail sales show spending may be losing steam

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