Japan's revised Q1 growth blows past expectations
TOKYO —Japan posted stronger-than-expected growth in the first quarter as a pickup in capital spending drove the world’s number three economy, but some economists warn that the recovery could be short-lived.
The 1.0% expansion in January-March—or 3.9% on annualised basis—was sharply up from an initial estimate of 0.6% growth, according to the Cabinet Office figures.
The upbeat data is good news for Tokyo’s efforts to boost the economy, but household spending remains stubbornly weak as the Bank of Japan struggles to push up prices in a bid to end decades of deflation.
Despite wage rises at big firms and a tighter labor market, convincing people to splash out on consumer goods has been a struggle after Japan raised sales taxes last year to help pay down a huge national debt.
The rise hammered consumer spending and pushed the economy into a brief recession. Japan limped out of the red in the last three months of 2014 with Monday’s surprise figures offering some hope for a recovery.
“Capital spending is the last piece of the puzzle, with exports and consumption showing signs of recovery,” said Atsushi Takeda, an economist at Itochu Corp. “A sustainable economic recovery is starting.”
Corporate investment rose 2.7% from the previous quarter, well above an initial 0.4% expansion.
The growth figures fell in line with the Bank of Japan’s assessment that the economy was on the upswing, and they may push back any timeline for the central bank to launch more stimulus.
However, BOJ Gov Haruhiko Kuroda has been forced to push back a timeline for hitting a 2% inflation target—a cornerstone of Prime Minister Shinzo Abe’s plan to kickstart the deflation-plagued economy—although he insists that healthy price rises are around the corner.
The data on Monday contrasted with revised U.S. figures that showed the world’s top economy contracted an annualised 0.7% in the first three months of the year, with the impact of a ports slowdown and cautious consumer spending worse than originally estimated.
The U.S. is a major market for Japanese exporters and despite the apparent strength of Monday’s figures, they also raised a red flag as firms’ inventories rose from three months earlier.
“This (inventory buildup) implies that the underlying pace of demand was not nearly as strong as the headline suggests,” Marcel Thieliant from Capital Economics said in a commentary, adding that consumer spending and industrial output remained lackluster. “We expect a sharp slowdown in GDP growth in Q2.”
Separate data Monday showed Japan’s current-account surplus made a six-fold jump to 1.32 trillion yen ($10.5 billion) in April, thanks to an improving trade picture and buoyant returns on company investments.
The figures mark Japan’s broadest measure of trade with the rest of the world, including both goods and services, tourism and returns on foreign investment.
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