Japan's GDP miss – What went wrong?

Japan's economy grew at a much slower pace than expected at the end of 2013, stoking fears that Abenomics' momentum has stalled, but some economists say the dip will prove fleeting.

Japan's economy grew 0.3 percent in the fourth quarter of last year from the previous quarter, below analysts' expectations in a Reuters' poll for a 0.7 percent gain, data on Monday showed. On an annualized basis the economy grew 1 percent, below expectations of 2.8 percent.
"Weak Q4 GDP (gross domestic product) figures show that the surge in spending ahead of the consumption tax hike has yet to come," said Marcel Thieliant, Japan economist at Capital Economics.
(Read More: Is the Japan story getting threadbare?)

"Looking ahead, last-minute spending to avoid the higher sales tax will likely lead to a further acceleration in economic growth in the first quarter [of 2014], followed by a slump in the second quarter," he added.

Many economists have been expecting consumers to rush out and stock up on supplies prior to the sales tax hike due in April, which will raise consumption tax to 8 percent from 5 percent, in a move some fear could strangle Japan's economic recovery so far as consumers suffer negative wage growth.

Bloomberg Contributor | Bloomberg | Getty Images

However, as Capital Economics' Thieliant pointed out, the spending surge has not seemed to take hold yet, given the disappointing fourth quarter number.
(Read more: China PMI, Bank of Japan in spotlight this week)

And according to IHS Global Insight's Japan economist Harumi Taguchi, weak growth in wages and rising fuel and food costs could have impinged on Japanese consumers' appetite to go out and spend in preparation for the tax hike.
Now, many economists are now arguing that the weaker-than-expected fourth quarter growth figure could prompt further easing from the Bank of Japan at this week's policy meeting concluded on Tuesday, sooner rather than later, helping boost 2014's growth levels.
"With real exports seriously under-performing and the recent rise in the yen, a further monetary easing step could be in the offing earlier than expected, possibly in a surprise move at the upcoming meeting," said Uwe Parpart, chief strategist at Reorient Group.

Why hasn't Abe fired the third arrow yet?

Binay Chandgothia, Portfolio Manager at Principal Global Investors, lists out factors that are hampering Japan's structural reform process.

IHS's Taguchi added that she saw Japan's real GDP growth turning positive in the third quarter of 2014 as extra stimulus from the BOJ, combined with better external demand boosts the economy.
(Read more: Russia-Japan: Example of peace, commerce in Asia?)
Japan's growth in the fourth quarter was fueled by strong rises in private consumption – which grew 0.5 percent on quarter – and non-residential investment, which ticked up 1.3 percent on quarter.
However, faster private demand was offset by slower public demand, and a sharp decline in net exports, which shaved 0.5 percentage points off headline growth, lowered the overall figure.
And several economists flagged the sharp fall in machinery orders in December as a concern, which Capital Economics said raised the chances of a downward revision in second estimate of Q4 GDP due out on March 10.

(Read more: Nikkei's rout - Is it a signal to buy?)

Prime Minister Shinzo Abe's ambitious plan to reform Japan's struggling economy has included aggressive monetary easing, fiscal stimulus and structural reform. Since it has been put into action, it has been effective in dragging Japan out of recession and helped stimulate a healthy level of inflation – last recorded at 1.3 percent year on year - but doubts remain over Abe's commitment to structural reform.
"It is now the turn for private sector to drive the economy and the third arrow: the growth strategy, which has not actually had an effect yet, and this is seen as the key for sustainable growth, as well as deregulation, which will be of key importance," said IHS's Taguchi.
In Asia trade on Monday the yen traded down 0.2 percent at 101.37 per dollar, its highest level against the dollar since February 6.

— By CNBC's

Do rising Singapore bankruptcies signal trouble ahead?

Concerns over Singapore's rising household debt levels may increase after data showed bankruptcy orders have risen to the highest level since 2009, but it isn't clear whether it signals trouble ahead.

Bankruptcy orders rose nearly 14 percent on year in 2013, and although the actual number was relatively low at 1,992, that is the highest number since 2009, the middle of the global financial crisis.

(Read more: Singapore, the tiny state with military clout)

"We're seeing perhaps rising costs coming from rentals and labor costs having some impact on some businesses in a very competitive landscape," said Song Seng Wun, an economist at CIMB. "It is inevitable that some businesses and individuals who may have overstretched themselves would struggle."
The wealthy Southeast Asian nation has seen soaring household debt levels in recent years as low interest rates have led to a borrowing spree, prompting the government to step in to curb demand amid concerns rates are heading higher.
Singapore's household debt-to-income ratio has risen to 2.1 times in 2012 from a low of around 1.9 times in 2008 during the Lehman crisis, according to data in the annual financial stability review, released by the city-state's central bank, the Monetary Authority of Singapore, in December.

The MAS estimates about 5-10 percent of borrowers have a total debt-servicing burden of over 60 percent of their income, with that potentially rising to 10-15 percent of households if mortgage rates rise by 300bps.
Song noted that banks' charge-off rate for credit cards at the end of December was at 5 percent, up from 4.8 percent at the end of 2012 and 4.3 percent at the end of 2011.

"It tells a story to a certain extent," he said. "The amount written off by banks is still modest, but nonetheless, the trend is there," Song noted.

(Read more: Higher wealth taxes on the cards for Singapore?)

Changing cultural values may also be driving some of the increase in bankruptcy orders. Traditionally for Asian families, declaring bankruptcy would be considered a "loss of face" and would be avoided.
"It's less taboo nowadays, certainly it's much more the case than say a decade ago," Song said. "With people encouraged to be entrepreneurs, there's less of a stigma to be declared bankrupt."
A stronger entrepreneurial spirit does appear to be driving some of the increase in bankruptcy orders.
While "traditional" problems – such as people living beyond their means and racking up debt on credit cards and auto loans – drive many bankruptcies, entrepreneurship gone wrong is spurring more filings, said R Nandakumar, an attorney who does insolvency work for both companies and individuals.
"The bank will normally require personal guarantees from the director (of a company) for financing," Nandakumar said. "If the company fails, then the directors become liable."
(Read more: Singapore dollar still draws safe haven seekers)
While the percentage increase in the number of bankruptcy orders is shocking, one factor likely to help keep the absolute number low – and debtors negotiating directly with their creditors – is that filing for bankruptcy in Singapore is far from the relatively painless process in many Western countries.
"It's not an easy process. Going through the bankruptcy regime in Singapore is actually difficult," Nandakumar said.
Not only will bankrupts need to transfer assets to an official assignee and make payments for three to five years, but they could be disqualified from being officers at companies and will need to apply for permission for any trips outside the country, Nandakumar noted.
Indeed, with those high hurdles that come with bankruptcy, Nandakumar believes the rise in bankruptcy orders may have less to do with economic travails and more related to the city-state's population increase – around 5.4 million people lived in the city-state at the end of 2013, up from 4.0 million in 2000.
—By CNBC'