Japan GDP jumps, but likely to slow next year

Japan's economy grew at the fastest pace in more than two years in the third quarter as stimulus lifted consumer spending and capital spending rose, but analysts say growth will slow as falling wages reduce the lure of subsidies on cars and electronics.

Most economists say there is little chance of Japan's economy, which extended its rebound to a second quarter, returning to recession as stimulus spending overseas should be enough to support a gradual rise in demand for Japanese exports.

The outlook for domestic demand is less encouraging because even though subsidies and tax breaks enacted by the previous government will remain in place until next year, an expected fall in year-end bonuses and a soft labour market mean households will have less to spend. This also means corporate spending will struggle to accelerate.

Japan's economy grew 1.2% in July-September from the previous quarter, faster than the median estimate for 0.7% growth. It was the largest gain in gross domestic product (GDP) since a 1.4% rise in January-March 2007 and compares with a revised 0.7% expansion in April-June, which was the first growth in five quarters.

"With weakness ahead in private consumption or public spending, a slowdown is unavoidable in the January-March and April-June quarters," said Kyohei Morita, chief economist at Barclays Capital in Tokyo.

"The one bright spot is that capital spending turned positive. However, while this signals that capital spending is starting to rise from the bottom, the size is still not enough to promise the kind of speed that would be required to prevent a slowdown in the first half of 2010."

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