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Japan's economy seen rebounding in Q4, analysts wary about rising material costs – Reuters

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Pedestrians wearing protective masks, following the coronavirus disease (COVID-19) outbreak, make their way during commuting hour at a business district in Tokyo, Japan, January 7, 2021. REUTERS/Kim Kyung-Hoon/File Photo GLOBAL BUSINESS WEEK AHEAD

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TOKYO, Dec 16 (Reuters) – Japan’s economy will likely grow sharply in the current quarter and the first three months of next year, as consumer and corporate activity are expected to rebound from a heavy pandemic-induced toll, a Reuters poll of economists showed.

But the world’s third-largest economy faces uncertainty from rises in raw material and energy prices globally, with nearly all analysts warning that such price changes will have a damaging impact.

Japan’s gross domestic product (GDP) growth is set to pick up an annualised 6.1% this quarter, far stronger than the 5.1% gain projected in last month’s poll, according to the median forecast of nearly 40 economists.

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That rebound follows the third quarter’s 3.6% slump and would be welcomed by policymakers hoping to see the economy steadily shake off the drag from the health crisis after the lifting of pandemic curbs following a summer spike in COVID-19 cases.

“It’s of course hard to imagine consumption will recover to pre-coronavirus levels at once,” said Toshiaki Ono, senior economist at Fukoku Mutual Life Insurance.

Still, a pickup in the number of people going out was likely to boost the economic growth rate this quarter, even with services spending remaining lower than before the crisis, he said.

Growth was expected to come in at an annualised 4.9% in the first quarter of 2022, better than the 4.2% expansion projected in last month’s poll, the Dec. 3-15 poll showed.

The government unveiled a $490 billion spending package last month as it seeks to offset the impact from the pandemic, going against a global trend of unwinding crisis-mode stimulus.

Analysts have expressed hopes private consumption, which accounts for more than half of GDP, will benefit from the government’s spending package, especially its plan to restart a domestic tourism campaign.

Still, the median poll forecast for the current fiscal year was lowered to 2.8% from 3.1% seen last month, while that of next fiscal year was raised to 3.1% from 2.8%.

Core consumer prices, which exclude volatile fresh food prices, were expected to rise 0.8% next fiscal year, which compared to a 0.7% gain projected last month, the poll showed.

That would follow a flat reading this fiscal year, unchanged from last month.

The poll showed more than 90% of economists said changes in oil, energy and raw material prices were likely to have a damaging impact on the economy over the next year, even as any price rises in the country will likely be moderate compared with other advanced economies.

Any possible fluctuations in input price levels could make it harder for firms to expand their business aggressively, said Masamichi Adachi, chief economist for Japan at UBS Securities.

“Large changes in input prices due to import costs may make it more difficult for companies to manage their operations,” Adachi said.

(For other stories from the Reuters global economic poll: read more )

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Reporting by Daniel Leussink; Polling by Md Manzer Hussain and Devayani Sathyan
Editing by Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

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Economy

U.S. economic growth for last quarter revised up slightly to healthy 3.4% annual rate

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The U.S. economy grew at a solid 3.4 per cent annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2 per cent rate last quarter.

The Commerce Department’s revised measure of the nation’s gross domestic product – the total output of goods and services – confirmed that the economy decelerated from its sizzling 4.9 per cent rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports and business investment in buildings and software. It marked the sixth straight quarter in which the economy has grown at an annual rate above 2 per cent.

For all of 2023, the U.S. economy – the world’s biggest – grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

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Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices – called the personal consumption expenditures price index – rose at a 1.8 per cent annual rate in the fourth quarter. That was down from 2.6 per cent in the third quarter, and it was the smallest rise since 2020, when COVID-19 triggered a recession and sent prices falling.

Stripping out volatile food and energy prices, so-called core inflation amounted to 2 per cent from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring – at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1 per cent in June 2022, it has dropped to 3.2 per cent, though it remains above the Fed’s 2 per cent target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

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Economy

Canadian economy starts the year on a rebound with 0.6 per cent growth in January

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The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada said Thursday.

The rate was higher than forecasted by economists, who were expecting GDP growth of 0.4 per cent in the month. December GDP was revised to a 0.1 per cent contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7 per cent growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

WATCH | The Canadian economy grew more than expected in January: 

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Canada’s GDP increased 0.6% in January

41 minutes ago

Duration 2:20

The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada says.

“The more surprising news today was the advance estimate for February,” which suggested that underlying momentum in the economy accelerated further that month, wrote CIBC senior economist Andrew Grantham in a note.

Thursday’s data shows the Canadian economy started 2024 on a strong note after growth stalled in the second half of last year. GDP was flat or negative on a monthly basis in four of the last six months of 2023.

More time for BoC to assess

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the central bank has said it does not want to stay on hold longer than needed.

Because recent inflation figures have come in below the central bank’s expectations, “it appears that much of the growth we are seeing is coming from an easing of supply constraints rather than necessarily a pick-up in underlying demand,” wrote Grantham.

“As a result, we still see scope for a gradual reduction in interest rates starting in June.”

WATCH | Bank of Canada left interest rate unchanged earlier this month: 

Bank of Canada leaves interest rate unchanged, says it’s too soon to cut

22 days ago

Duration 1:56

The Bank of Canada held its key interest rate at 5 per cent on Wednesday, with governor Tiff Macklem saying it was too soon for cuts. CBC News speaks with an economist and a couple who might be forced to sell their home if interest rates don’t come down.

The central bank has maintained its key policy rate at a 22-year high of five per cent since July, but BoC governors in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5 per cent in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in 18 out of 20 sectors

Growth in January was broad-based, with 18 of 20 sectors increasing in the month, StatsCan said. The agency said that real estate and the rental and leasing sectors grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January.

Overall, services-producing industries grew 0.7 per cent, while the goods-producing sector expanded 0.2 per cent.

In a preliminary estimate for February, StatsCan said GDP was likely up 0.4 per cent, helped by mining, quarrying, oil and gas extraction, manufacturing and the finance and insurance industries.

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Economy

Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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