, inventory restocking, and heightened demand for rebuilding. nevertheless, as the second half of 2012 began exports and production decreased sharply, reflecting the deceleration in the global economy due to the worsening of the european debt problem and the slowdown in the chinese economy. the real gdp growth rate for the july – september quarter of 2012 was minus 0. 9 percent on a quarter - on - quarter basis and minus 3. 7 percent on an annualized basis. however, that for the october – december quarter was 0 percent on a quarter - on - quarter basis and 0. 2 percent on an annualized basis, and japan ’ s economy seems to have stopped weakening recently, in a situation where overseas economies have shown signs of picking up, as i mentioned earlier. however, the pace of improvement in japan ’ s exports seems somewhat slow compared with developments in overseas economies. this is attributable to a degree to the drop in exports to china, reflecting in part the recent developments in the relations between japan and china, but it is largely attributable to the sluggish exports of capital goods and parts, which are a major category of japan ’ s exports along with automobiles. in this regard, the sluggishness in exports of capital goods and parts is strongly affected by the fact that sentiment in the manufacturing sector has deteriorated worldwide amid the current phase of global economic deceleration, causing firms to take a cautious stance toward business fixed investment. if a recovery trend in overseas economies becomes clear and production starts increasing, firms will regain their appetite for business fixed investment, raising the level of japan ’ s exports. i have discussed overseas demand. now, looking at domestic demand, public investment, in terms of the amount of public construction completed, has continued to increase since around the end of 2011, primarily in that related to reconstruction following the earthquake disaster. public investment is expected to continue trending upward, supported by the effects of various economic measures. business fixed investment has shown some weakness on the whole, as that in the manufacturing sector has declined due to the drop in exports and production, although resilience has been observed in investment in the nonmanufacturing sector. on the other hand, private consumption remains resilient and the effects of the decline in car sales due to the ending of measures to stimulate demand for automobiles have fallen off. private consumption is expected to remain resilient as a trend. attention, however, needs to be paid to the fact

that the income situation cannot necessarily be regarded as firm, given that summer and winter bonus payments in 2012 were below the previous year ’ s levels and non - scheduled cash earnings have also declined. meanwhile, housing investment has generally been picking up, supported in part by reconstruction of disaster - stricken homes. it is expected to continue to do so, as a front - loaded increase in demand prior to the consumption tax hike is likely to occur. recently, stock prices have been rising and the yen has been depreciating. a number of factors have been pointed out as the background to these developments, including ( 1 ) abating tensions in the global financial markets due to a settling down of the european sovereign debt crisis for the time being and the reduced threat of the fiscal cliff ; ( 2 ) expectations for the outlook for the u. s. and chinese economies ; and ( 3 ) the widening of japan ’ s trade balance deficit and a sharp fall in the current account surplus. rising bis central bankers ’ speeches expectations in regard to the policy conduct of the government and the bank of japan are also a large factor. in these circumstances, business and household sentiment has improved significantly. as overseas economies recover, japan ’ s economy is expected to return to a solid recovery path as well. in this situation, it is particularly important that the improved business and household sentiment be maintained to ensure strong momentum for recovery. b. outlook for japan ’ s economic activity and prices next, i will talk about the outlook for japan ’ s economic activity and prices. semiannually, in april and october, the bank releases the outlook for economic activity and prices, known as the outlook report, in which it presents its outlook for economic activity and prices for the next two years, carefully assesses upside and downside risks, and summarizes its thinking on the conduct of monetary policy. then, in january and july, the bank makes interim assessments of the outlook laid out in the outlook report. according to the interim assessment made in january 2013, the policy board members ’ baseline scenario for japan ’ s economy is that it is expected to level off more or less for the time being, and thereafter it will return to a moderate recovery path as domestic demand remains resilient, partly due to the effects of various economic measures, and as overseas economies gradually emerge from the deceleration phase. as for prices, the year - on - year rate of change in the consumer price index ( cpi ) is expected to turn negative for