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Asia Economy Last Updated: Aug 27, 2014 - 10:38 PM

Japan's GDP shrank at annualized 6.8% in Q2 2014 after sales tax hike
By Michael Hennigan, Finfacts founder and editor
Aug 13, 2014 - 7:59 AM

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Shinzo Abe, Japan's prime minister, attended the annual Nagasaki Peace Memorial Ceremony held in the Peace Park in Nagasaki City, August 09, 2014 on the 69th anniversary of the dropping of an atomic bomb on the city.

Japan's GDP (gross domestic product) shrank an annualized 6.8% in the second quarter (Q2 2014), plunging at its quickest pace since the March 2011 earthquake-tsunami disaster and hurt by the 3-percentage-point consumption tax hike to 8% from April 1.

The pace of the economic downturn almost matched the 6.9% fall in the January-March quarter of 2011 due to the disaster and was much faster than the 3.5% decline after the last consumption tax hike in April 1997 when the tax rate was increased by 2 points to 5%.

The plunge in April-June inflation-adjusted gross domestic product corresponds to a 1.7% drop from the previous three months, the Cabinet Office said in a preliminary report. In the January-March quarter, GDP expanded a revised 1.5% on quarter for an annualized rise of 6.1%.

Personal spending dropped 5.0% following a 2.0% increase in Q1 2014 while in the January-March period of 1997, personal spending rose 2.1%, but fell 3.5% in the following quarter.

External demand did not grow either in the last quarter. Exports fell 0.4% in April-June, sliding into negative territory for the first time in three quarters.

Exports grew 4.2% on the year in April-June of 1997, supporting the economy in place of shrinking consumption. "Production shifts to overseas are well underway," said Amari, indicating that the export decline this time is a long-term structural trend.

The Nikkei newspaper says economists doubt the Japanese economy will slip into a downward spiral. According to the Japan Center for Economic Research, 42 economists it surveyed forecast GDP will grow 4.08% in the July-September period.

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