By Stanley White
TOKYO (Reuters) - Japan's economy grew much less than initially thought in the fourth quarter as capital expenditure declined in a worrying sign that a rebound in consumer spending is not encouraging business investment.
The revised fourth quarter data joins a mixed batch of indicators over recent months that underscore a fragile recovery from a recession, which analysts say could pressure the Bank of Japan to inject fresh stimulus later this year to meet its inflation goal and beat back years of falling prices.
The economy grew an annualised 1.5 percent in October-December, Cabinet Office data showed Monday, down from a preliminary reading of an annualised 2.2 percent expansion and below the median estimate for 2.2 percent growth.
Consumer spending in the fourth quarter was revised up, showing some parts of the economy are improving. However, weak capital expenditure suggests Tokyo's policy mix of fiscal and monetary expansion and structural reforms have so far failed to generate a virtuous cycle of higher consumption driving corporate earnings, wages growth and business investment.
"One reason for the disappointing capex is the shift in production overseas that has been happening for the past few years," said Norio Miyagawa, senior economist at Mizuho Securities.
"I still expect the economy to continue to grow, but the virtuous economic cycle that policymakers have been talking about really hasn't fallen into place yet."
In response to worries about the pace of economic growth and in an indication of the BOJ's readiness to defend its inflation target, deputy governor Hiroshi Nakaso said on Monday that further monetary easing is likely if oil price falls hamper its efforts to ramp up inflation expectations.
On a quarter-on-quarter basis, the economy grew 0.4 percent in the fourth quarter, compared with a preliminary reading of 0.6 percent increase and expectations of 0.6 percent.
Fourth quarter GDP growth was mainly undermined by weak business investment and inventories.
Capital expenditure fell 0.1 percent from the previous quarter, less than a preliminary 0.1 percent increase and less than the median estimate for a 0.3 percent expansion.
The immediate outlook for capex may not look rosy either, as a Reuters poll forecast machinery orders to have fallen 4.1 percent in January from the previous month, after having risen 8.3 percent in December, the fastest pace in six months.
Consumer spending, which is crucial to achieving policymakers' aim of spurring sustainable economic growth, rose 0.5 percent, more than a preliminary 0.3 percent increase.
Other data this year on consumer spending has been less convincing, and there are lingering doubts whether the BOJ can achieve 2 percent inflation sometime around next fiscal year starting from April.
Economic growth is expected to accelerate in the current quarter to a 2.4 percent annualised expansion, according to a Reuters poll, but some economists have doubts whether this pace can be sustained.