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2014 September 3 - 9 [ECONOMY]

Japan faces biggest GDP drop after Lehman shock

September 9, 2014
Japan’s Gross Domestic Product decreased by 1.8% during the April-June quarter of 2014, which is annualized to a negative growth rate of 7.1%, the Cabinet Office on September 8 announced.

The government made a downward revision to last month’s preliminary estimate, an annualized decline rate of 6.8%. It is the second biggest GDP drop following a 15.0% decline in the first quarter of 2009 when the aftershock of the bankruptcy of Lehman Brothers affected Japan’s economy.

Growth rates of various GDP components were also revised downward. Private non-residential investment fell by 5.1% from the previous quarter. While large corporations are making huge profits thanks to so-called Abenomics, the money is not invested in plants and equipment.

This is due to stagnant domestic demand. In the second quarter of 2014, personal consumption expenditure, which accounts for around 60% of Japan’s GDP, dropped by 5.1% from the previous period or by 19.0% on an annualized base, the largest decline in the last 20 years.

The drop in consumer expenditure was an outcome of the lowering of wages. Japanese worker’s real wages decreased by 1.9% from the same period last year.

Chief Cabinet Secretary Suga Yoshihide at a press conference on the same day said that Japan’s economy is still on a moderate recovery track. However, in reality, Japan is trapped in a vicious cycle in which falling wages lead to a decrease in consumer spending, causing a decline in GDP.
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