Japan's economy grew at aslower-than-expected annualized rate of 1.4 percent in April-June, adding toworries over the global outlook, as consumer spending flagged following arebound earlier in the year from last year's earthquake and tsunami disasters.
The protracted crisis in Europe took a heavy toll, also, as feeble demand hitJapan's export sector.
Although the pace of growth dropped sharply from a revised 5.5 percent in theprevious quarter, the economics minister, Motohisa Furukawa, struck an upbeattone, saying in a statement that the economy "continues in an uptrend, ledby domestic demand."
The fact that the economy expanded, on top of the robust growth for theprevious quarter, is a positive sign, said Junko Nishioka, an economist at RBSJapan Securities.
Government subsidies for purchases of energy efficient vehicles are stillhelping support growth, she said. The economy will also be buttressed by strongpublic investment, which is due to peak in October-December, she said.
However, Nishioka said the risk of worsening deflation is a "pessimisticresult" that might prompt Japan's central bank to consider further easingof monetary policy to support growth. Deflation, or falling prices, is achronic problem for Japan and can be a drag on economic growth.
Consumer spending makes up more than half of Japan's economic activity. Afterthe March 11 disaster last year, many Japanese held back on spending andexcursions, adding to damage from disruptions to manufacturing from the twin disastersin northeastern Japan, where many auto and electronics plants ground to a halt.
Robust public investment in reconstruction of housing and other buildings inthe devastated northeastern region is likely to wane in coming months, furtherreducing momentum. Meanwhile, the strong Japanese yen has clobbered exports,and costs for importing fuel to offset lost generation capacity from closednuclear power plants have mounted.
Japan's economy grew 0.3 in the quarter ending in June from 1.0 percent in January-March.That was lower than economists' forecasts of over 2 percent, and translates toa 1.4 percent expansion in annualized terms.
The latest growth marks a fourth straight quarter of growth, although still atfragile rates. The economy was virtually flat in October-December but did notshrink.