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Business

Japan returns to growth in first quarter

Japan sidestepped a recession in the first quarter, thanks to a boost from domestic consumption. However, experts think the rebound will not be strong enough to dispel fears of a contraction later this year.

Preliminary data released by Japan's Cabinet Office on Wednesday showed gross domestic product (GDP) of the world's third largest economy expanded by 0.4 percent between January and March, or 1.7 percent on an annualized basis.

A rebound in consumer spending helped drive the slightly better-than-expected figures. Private consumption, which makes up 60 percent of GDP, rose 0.5 percent, as households boosted spending on televisions, food and beverage, and recreation.

In addition, an extra day, due to the leap year, fuelled growth, helping the economy to avert a recession - defined as two straight quarters of contraction.

"Taking into account the effects of the extra day from the leap year, which pushed up the quarter-on-quarter growth rate by 0.3 percentage point, growth is not as strong as the headline number shows," Hidenobu Tokuda, senior economist at Mizuho Research Institute, told the news agency AFP.

Japan's economy contracted 1.7 percent in the final quarter of last year as slow wage growth hurt private consumption, while exports felt the pinch from sluggish emerging market demand and the pain of a strong yen.

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Abe's stimulus blitz faltering

The latest underwhelming GDP data cast renewed doubt on the growth plan of prime minister Shinzo Abe, who wanted to drag Japan out of years of stagnation with big government spending, central bank monetary easing and reforms to the highly regulated economy.

However, after initial signs Abe's policy - dubbed Abenomics - had been bearing fruit, the plan was shaken by a bloodbath on equity markets at the start of the year and a resurgent yen which has taken a bite out of corporate profits.

The faltering stimulus blitz will also throw renewed focus on his attempt to raise Japan's consumption tax for a second time after an increase in 2014.

Abe has repeatedly said there is no change to his plan to proceed with the tax increase, unless Japan is hit by a huge earthquake or a shock of the scale of the collapse of Lehman Brothers in 2008. But he's acknowledged that private consumption is weaker than expected since it was hit by the first tax hike in 2014.

Raising sales tax is seen as crucial for Japan to be able to pay down its huge debt. But the 2014 hike has been blamed for ushering in a brief recession last year.

uhe/jd (AFP, Reuters, dpa)

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