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POLITICAL ECONOMY
Japan factory output posts surprise jump but recovery unclear
by Staff Writers
Tokyo (AFP) Oct 29, 2014


World Bank sees lower 2015 China growth goal as appropriate
Beijing (AFP) Oct 29, 2014 - An economic growth target of about seven percent, down from 7.5 percent this year, would be appropriate for China in 2015, the World Bank said Wednesday as expansion slows in the world's second-largest economy.

China enjoyed decades of decades of double-digit increases, but its leaders have repeatedly pledged to transform its growth model to a more sustainable one driven by consumer spending rather than state-led investment.

Nonetheless authorities in March set this year's target -- which is normally exceeded -- at about 7.5 percent, the same objective as for 2013, when gross domestic product (GDP) grew 7.7 percent.

"In our view, an indicative target of around seven percent for 2015... is needed to maintain stability in the labour market," Karlis Smits, Beijing-based senior economist for the bank, told reporters as the institution released its China Economic Update report.

The document also cast doubt on the use of growth targets, saying that emphasis on short-term expansion goals "will make it more challenging to implement the policies necessary to shift growth to a more sustainable medium-term path".

"The policy focus should be on reforms rather than on meeting specific growth targets," Smits said.

Market forces were playing a bigger role in China, he added, saying: "Conducting an economic policy by setting a growth target per se would kind of undermine this transition towards a new growth model."

Chinese authorities have ample policy tools "to meet an ambitious target for the next year" if they choose to do so, he made clear.

"However, we think that these buffers should be saved for the future as a safety net in case something else happens", he added, such as any unexpected "external shocks".

China's GDP expanded 7.3 percent in the third quarter this year and 7.4 percent for the first nine months.

Growth will slow to 7.4 percent this year, 7.2 percent next year and 7.1 percent in 2016, the World Bank said in the economic update, "reflecting intensified policy efforts to address financial vulnerabilities and structural constraints and to make growth more sustainable".

Japan's September factory production posted its biggest rise in eight months, official data showed Wednesday, but the news failed to dispel doubts about the strength of the wider economy following a recent string of weak figures.

Industrial production rose 2.7 percent on-month, reversing a drop of 1.9 percent in August, the Ministry of Economy, Trade and Industry said.

That reading beat the median market forecast of a 2.2 percent rise and is the highest rise since a 3.9 percent expansion in January.

However, the quarterly data were less rosy with output from Japan's factories shrinking 1.9 percent in July-September from the previous quarter, as makers of cars and home appliances tried to bring down their inventories after an April sales tax rise hit consumer spending.

The quarterly output drop followed a 3.8 percent fall in April-June, when the world's number three economy suffered its biggest contraction since the 2011 quake-tsunami disaster.

Industrial output had grown at its fastest rate in more than two years in January as it caught up with stronger demand, before losing steam in the following months.

Retail sales also got a boost ahead of the April 1 sales tax rise -- Japan's first in 17 years -- as shoppers made a last-minute dash to buy staples and big-ticket items such as cars and refrigerators before prices went up.

The industry ministry remained cautious despite the monthly upturn in manufacturing activity.

"Industrial production fluctuates indecisively," it said in a monthly report, a more upbeat assessment than its August report, when the ministry said production "has weakened".

A survey of manufacturers released with the data showed that they expected factory production to edge down 0.1 percent on-month in October and then pick up 1.0 percent in November.

"The surge in manufacturing output in September suggests that the sector has finally turned the corner, but a strong recovery is not on the cards," Marcel Thieliant, Japan economist at Capital Economics, said in a note.

Despite the lacklustre production, however, Japan is likely to manage to post small growth in the third quarter as activity in other parts of the economy such as the retail sector "seems to have picked up", he said.

"Overall, we still expect GDP to increase by around 0.5 percent quarter-on-quarter in Q3," following a drop of 1.8 percent in the second quarter, he said.

Third-quarter GDP data due out on November 17 will be closely watched for clues as to how Prime Minister Shinzo Abe's economy growth blitz, known as "Abenomics", is faring.

The data will be a key factor in whether Abe decides to raise the sales tax again to 10 percent next year -- seen as crucial to Japan paying down a massive national debt.

The GDP data could also influence the Bank of Japan's monetary policy, which has been aimed at stoking inflation, but which has had an adverse impact on private consumption.

-- Dow Jones Newswires contributed to this article --


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