Japan economy expands at 2.2% annual pace in January-March

In Photo: Newly opened shopping mall Ginza Six is crowded with shoppers in Tokyo on April 28.

TOKYO—Japan reports that its economy grew at a faster-than-expected 2.2-percent annual pace from January to March.

Economists had forecast a strong expansion in the first quarter for the world’s third-largest economy, helped by a recovery in exports and consumer spending. But most estimates had not topped 2 percent.

The figures released on Thursday are preliminary and likely to be revised. The economy grew at a 1.2-percent pace in the last quarter of 2016.

Recent data suggest a weakening of corporate spending on factory equipment that may pull growth lower in the current quarter.

“Japan’s economy is on its longest streak of expansion in more than a decade,” Marcel Thieliant of Capital Economics said in a commentary. “However we expect a slowdown in the second half of the year,” he said.

On a quarterly basis, the economy expanded 0.5 percent from January to March.

Japan’s central bank is pumping trillions of yen (tens of billions of dollars) into the economy each month through asset purchases to counter deflation and boost growth. That has kept the economy growing, but generally at a slower pace than hoped for.

Economists say that lagging growth in wages is hindering the recovery. Unemployment has dipped to levels not seen since the early 1990s, but instead of boosting salaries, companies have tended to hire more part-time or temporary workers at lower wages to save on costs.

Major corporations are investing more heavily abroad, in markets that promise faster growth than in aging Japan, where the population is shrinking.

Construction in preparation for the 2020 games is expected to pick up in the coming year, though the Bank of Japan has estimated it will contribute only a fraction of a percentage to GDP growth in 2018.

The last time Japan strung together this many quarters of growth was in 2006, during the government of then-Prime Minister Junichiro Koizumi. Under the nation’s current leader, Shinzo Abe, the economy is again benefiting from a competitive currency and exporters are leading growth.

The first-quarter rebound in private consumption, which accounts for about 60 percent of GDP, comes after weakness the previous quarter. There is concern that spending may falter again, with stronger wage gains needed to support households and to allow retailers to raise prices.

“Exports have taken the lead in the recovery, and domestic demand wasn’t bad, showing resilience with household spending turning positive,” said Masaki Kuwahara, senior economist at Nomura Securities Co., which correctly forecast the 2.2-percent expansion.

“Looking ahead, the growth rate will slow a bit, if not turn negative, toward the second half of this year as China’s economic indicators are weakening a bit. I’m expecting exports to slow down, weighing on the overall growth rate,” Kuwahara said.

“It’s a pretty impressive number but I don’t think this can continue for a while,” said Takashi Shiono, an economist at Credit Suisse Group AG.

“Uncertainties are increasing rapidly with the chaos at the White House and a pickup cycle in global production could end soon,” Shiono said. “The risk-off sentiment in the market will put pressure on the yen to strengthen and that will weigh on Japan’s economy.”

Measured quarter-on-quarter, GDP rose 0.5 percent (estimate +0.5 percent). Domestic demand contributed 0.4 percentage point to GDP in the first quarter. Private inventories added 0.1 percentage point to GDP. The GDP deflator, a broad measure of price changes, fell 0.8 percent from a year earlier.

AP and Bloomberg News

 

Image Credits: AP/Shuji Kajiyama