Japan’s economy grew much more than expected in the first three months of 2016 due to stronger than forecast consumer and government spending and demand for Japanese exports.
The surprisingly better growth data – the fastest in a year – has ended pressure on Prime Minister Shinzo Abe’s government to launch more fiscal stimulus to help spur growth.
In had the data been as weak as expected (a constriction was forecast by some) there were rumours the Abe government would announce a one off ‘budget’ spending package of between $US45 billion and perhaps $US100 billion once the GDP figures had been published.
Gross domestic product expanded an annualised 1.7% on quarter in the January-March period and came after a revised 1.7% decline in the last quarter of 2015.
The 0.4% rise reversed a previous estimate of a contraction of 0.4%, while the 1.7% contraction for the December quarter was actually worse than the previous estimate of a contraction of 1.4%.
The much stronger than expected growth figure contrasts with recent weak economic data that fuelled expectations of another fiscal stimulus to generate growth.
A centrepiece of that package was an expectation Mr Abe would again hold off on a sales tax increase (from 8% to 10%) planned for 2017. Local media have reported that the Mr. Abe intends to delay the tax increase. A sales tax rise in 2014 was blamed for sending the economy into recession.
Growth was lifted by unexpectedly strong household spending, which increased 0.5% on quarter compared to forecasts for a 0.3% increase. )Household spending makes up roughly 60% of gross domestic product).
Government consumption rose 0.7% on quarter and public fixed investment increase 0.3%.
Exports (Net external demand) contributed 0.2 positive percentage points to growth. Exports increased 0.6% on quarter after a 0.8% fall in the previous quarter. Imports fell for a second consecutive quarter.
But business investment, long a major driver of Japanese growth, was again weak Companies cut back on business investment 1.4% on quarter, the first fall in three quarters.
The data will provide some comfort for the Bank of Japan, which took interest rates into negative territory on January 29. Moreover, there is some concern among economists that June quarter GDP could be affected by the relative strength in the yen and the supply chain disruptions following the earthquakes that hit the southern island of Kyushu in April.
