GDP falls 1.6 percent on annual basis; tax hike delay certain

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(c) 2014, The Yomiuri Shimbun.

TOKYO The nations gross domestic product in the July-September period showed an unexpected negative growth of 1.6 percent on an annual basis, the Cabinet Office said Monday.

According to a preliminary report announced by the Cabinet Office, the GDP dropped 0.4 percent from the previous April-June period in price-adjusted real terms for the second straight quarterly decline.

Prime Minister Shinzo Abe believes it will be difficult to raise the consumption tax rate from 8 percent to 10 percent in October next year as planned. Abe is expected to delay the consumption tax hike by 18 months until April 2017 and dissolve the House of Representatives.

Abe will announce his decision to postpone the planned consumption tax hike and intention to dissolve the lower house at a press conference on Tuesday. Dec. 14 is considered the most likely date for a general election, with official campaigning kicking off on Dec. 2.

The annualized GDP figure in the July-September period was substantially below the average forecast of 2.5 percent growth by private research institutes, clearly illustrating the economic stagnation after the consumption tax rate was raised from 5 percent to 8 percent in April.

Personal consumption, which accounts for about 60 percent of the nations GDP, increased 0.4 percent from the previous quarter. However, its recovery from the April-June period, which marked a 5 percent decline a reaction to a last-minute surge in demand prior to the tax hike in the previous quarter was slow.

Rises in income did not keep pace with a price increase of more than 3 percent, which includes the consumption tax hike. This made more consumers budget-minded, observers said. In addition, typhoons and heavy rain in July and August adversely affected the latest GDP figures. In particular, sales of automobiles and home electronics items whose replacement cycle is long were sluggish.

Meanwhile, capital investment in the July-September period fell 0.2 percent from the previous quarter, according the Cabinet Offices report. The corporate sectors performance was strong, but companies refrained from investment due to concerns over economic prospects following Aprils tax hike.

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GDP falls 1.6 percent on annual basis; tax hike delay certain