Tokyo, March 9 (Bloomberg) -- Japan's economy probably returned togrowth in the fourth quarter, rounding off its best year in three. Thatmay be a high point, amid signs growth will slow this year, economistssaid. Gross domestic product probably grew 0.6 percent in the three monthsended Dec. 31, seasonally adjusted, according to the median of 36forecasts in a Bloomberg News survey. The economy shrank 0.6percent in the third quarter, and just one economist surveyed said itcontracted again last quarter. The rebound may be short-lived as the main supports of growth --business investment and industrial production -- get dragged down byslower global growth. That might prompt the government to spendmore shoring up the economy, though policymakers' options areconstrained by Japan's record debt. ``We're at a crisis point in many different ways, with policy being themost visible one,'' said Vincent Musumeci, an economist at ABN AmroSecurities (Japan) Ltd. The fourth-quarter GDP report will be released Monday at 8:50 a.m.,Japan time. The economy probably grew 1.7 percent last year, thefastest since 1997, the survey found. Growth is expected to slow to0.7 percent this year. Investors have signaled their concern that Japan's economy is on theverge of another recession, and the government has run out ofanswers. The benchmark Nikkei 225 stock index has tumbled 40percent the past 11 months, reaching a 15-year low last week. The yen is trading near a 20-month low, and 10-year bond yields are attheir lowest in more than two years. The Bank of Japan last month cutits key interest rate 10 basis points to 0.15 percent, six months afterraising it from near zero.
Business Investment
The main source of growth last quarter was business investment,economists said. Capital spending, which makes up about 15 percentof the economy, rose 6 percent in the fourth quarter, according to theBloomberg survey. Housing investment probably rose 2.6 percent andpublic consumption chipped in with a 0.4 percent increase. Net exports -- exports minus imports -- are expected to havesubtracted 0.3 percentage points from growth last quarter. Exportsshrank 0.2 percent, while imports rose 3.2 percent, according toeconomists' forecasts. Japan's steelmakers are expected to cut production this year as salesto Asia slow. Nippon Steel Corp., the country's largest steelmaker,this week cut its full-year profit forecast 12 percent, while rivalKawasaki Steel Corp. cut its target for pretax profit from operations 13percent and said it will post a net loss.
Overseas Impact
``There's an impact on our business from the slowdown of overseaseconomies,'' said Yukiko Nagai, a spokeswoman at Nippon Steel.``Exports are being affected.'' Falling demand in Asia may cut Japanese steel production to 98million metric tons this year, 8 percent below the three-year high of106 million metric tons in 2000, the Japan Iron and Steel Federationsaid. Exports, by volume, dropped for the first time in 20 months in Januaryas shipments to all Japan's major trading partners --Asia, the U.S. andthe European Union -- fell. Overseas demand for cars, cameras and other Japanese-made goodshelped fuel economic growth last year, as manufacturers spent moreon factories and equipment, and cranked up production to meetdemand. That support for Japan is wilting. The U.S. grew at its slowest pace in5 1/2 years in the fourth quarter, and in Asia, countries from SouthKorea to Hong Kong are expecting their economies to grow at lessthan half of the pace of last year.
Tighter Purse Strings
Consumers are unlikely to plug the gap. Spending, which makes upabout 60 percent of the economy, probably fell 0.1 percent in the fourthquarter. A record high jobless rate, the fall in stocks and the high rateof bankruptcies have bruised consumer confidence. ``People have tightened their purse strings,'' said Kenichi Kameyama,spokesman at Takashimaya Co., Japan's biggest department storeoperator. ``They aren't willing to spend.'' Takashimaya will probably miss its operating profit forecast for theyear ended Feb. 28 because of a decline in sales in men's clothes. Overall department store sales in Tokyo fell 0.9 percent last year, thefourth straight annual decline. The government's ability to shore up growth by pouring money intopublic works projects is nearly exhausted. Public investment isexpected to have fallen 0.3 percent in the fourth quarter, after sliding10.7 percent in the third quarter. To counter the slowdown, the government unveiled an 11 trillion yenspending package in November, which is expected to kick in thisquarter. Even so, the government is pledging less and less to publicworks, constrained by a mounting debt that has snowballed to about130 percent of GDP. Slowing economic growth means the government will earn less fromtaxes, making it even tougher to pay down its debt. Finance MinisterKiichi Miyazawa yesterday said the government's finances are close tocollapse and in urgent need of reform. He apologized for thosecomments today. The government expects the economy to grow 1.7 percent in the fiscalyear starting April 1, while economists' estimates are now half that.