Fears of global slowdown build.

Japanese suppliers will be holding their breath as they watch reports that their country’s  economy contracted 1.4% in the final quarter of last year.  It seems consumer spending has faltered and underscores the challenges premier Shinzo Abe (pictured below) faces in dragging the economy out of stagnation, as exports to emerging markets fail to gain enough momentum to make up for soft domestic demand.

Japan PM

The contraction in gross domestic product (GDP) was bigger than a median market forecast for a 1.2% decline and followed a revised 1.3% increase in the previous quarter, Cabinet Office data showed on Monday. It matched a fall marked in April-June last year.

Private consumption, which makes up 60% of GDP, fell 0.8%, more than a median market forecast for a 0.6% decline, a sign Abe’s stimulus policies have so far failed to nudge households into boosting spending.

However, capital expenditure rose 1.4%, confounding market expectations for a 0.2% decrease.

While domestic demand shaved 0.5% point off GDP growth, external demand, or net exports, added 0.1% due to a decline in the value of imports caused by falling oil prices.

Last month the Bank of Japan unexpectedly cut a benchmark interest rate below zero, stunning investors with another bold move to stimulate the economy as volatile markets threatened its efforts to overcome deflation.