TOKYO (Reuters) - Japanese household spending fell at a much faster pace than expected in December, sliding for the third straight month in a sign consumers are having a hard time coping with a sales tax hike.
The world’s third-largest economy is struggling to regain momentum after last October’s sales tax hike led consumers to curb spending. China’s coronavirus epidemic also poses a new threat to the global growth outlook and Japan’s output and exports.
Household spending slipped 4.8% in December from a year earlier, government data showed on Friday, coming in well below a median forecast for a 1.7% decline.
Following the tax hike to 10% from 8%, the first such rise in four-and-a-half years, it tumbled 5.1% in October, the fastest pace of decline since March 2016, and dropped 2.0% in November.
“The warm winter is having a large impact as seasonal goods aren’t being sold,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“But consumer confidence is falling and taken together with the virus outbreak one can’t have high hopes of consumption for January-March.”
A government official also said the mild weather negatively impacted the sales of many goods in December, such as winter vegetables, while purchases of stoves and heaters also suffered from a post-tax hike pullback in spending.
Lower spending on eating out and entertainment also weighed, the official said.
Japanese policymakers are hoping for a recovery in domestic demand largely fuelled by resilience in consumer spending to help soften the blow to business profits from a delayed pick-up in global growth.
Stronger consumer spending is also needed to help achieve the Bank of Japan’s elusive 2% price target.
Sluggish wage recovery is leading to further worries about private spending, with inflation-adjusted real wages falling 0.9% to also drop for a third month in December.
For the whole of 2019, real wages also lost 0.9%, reversing a 0.2% gain in 2018, the data showed.
While Friday’s reading excludes the impact on spending from the virus outbreak originating in China, analysts expect it will hurt consumption in the coming months as sentiment takes a hit.
Japanese Prime Minister Shinzo Abe has ordered his government to take “all necessary steps” to mitigate the impact of the coronovirus outbreak on the economy, including tapping state budget reserves, Economy Minister Yasutoshi Nishimura said on Friday.
“There’s a risk the coronovirus outbreak could hurt consumption, so we need to watch developments carefully,” he said, adding the impact on inbound tourism is also a concern.
Other data released on Friday also showed the economy struggling to regain momentum.
The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, was at 94.7 in December, the Cabinet Office said.
That matched the previous month’s reading, which was the lowest since February 2013.
Japan’s economy is expected to have shrunk in the fourth quarter last year due to the fallout from the sales tax hike and a powerful typhoon, after it expanded 1.8% in the July-September period.
A preliminary U.S.-China trade deal had raised hopes globally of a let-up in the pressure facing businesses worldwide, in particular export-reliant nations like Japan.
But uncertainty on how the spread of the coronavirus could affect China - a major engine of global growth - has now cast doubt on the BOJ’s optimistic economic projection.
The BOJ expects the economy to recover this year, holding onto hope that global growth will rebound around mid-year and provide a lift to exports.
Reporting by Daniel Leussink; Editing by Sam Holmes