Japan Q1 growth fastest in more than 2 years before tax hike

Last Updated: Thursday, May 15, 2014 - 10:08

Tokyo: Japan`s economy grew in the January-March quarter at the fastest pace in more than two years as consumers rushed to spend before a sales-tax hike and business investment rose in a sign of confidence in the prospects for future growth.

The 5.9 percent annualised expansion in the first quarter handily beat expectations of 4.2 percent growth in a Reuters poll of economists.

It was the fastest expansion since 10.8 percent annualised growth in the third quarter of 2011, when the country was recovering from a record earthquake and nuclear disaster.

Capital expenditure also rose at the fastest pace in more than two years, suggesting the economy could quickly recover from an expected slowdown in consumer spending after the tax hike as business investment tends to spur job creation and higher salaries.

"We expect the economy will contract at an annualised rate of around 5 percent for April-June but will likely grow around the 2 percent level for July-September," said Taro Saito, senior economist at NLI Research Institute.

"The economy is expected to return to moderate growth after a temporary pullback, which is largely in line with the Bank of Japan`s scenario. It is hard to consider the BOJ will ease judging from an economic growth and price increase perspective."

Japan`s economic growth blew past that of the United States, which expanded by an annualised 0.1 percent in the same quarter as severe winter weather hurt business investment and exports in the world`s largest economy.

The data showed also that Japan`s economy expanded for a sixth consecutive quarter, which could ease worries about demand after the April 1 tax hike.

On a quarter-on-quarter basis, Japan`s economy grew 1.5 percent in January-March, more than the median estimate for 1.0 percent growth.

Private consumption, which makes up about 60 percent of the economy, rose 2.1 percent from the previous quarter, matching the median estimate.

That matched a high last seen in the first quarter of 1997, just before the last increase in the sales tax.

Capital spending - which had been a weak spot in the economic recovery - rose 4.9 percent, more than double the median estimate for 2.1 percent growth and the fastest expansion since October-December 2011 as companies used increased profits to invest in factories and equipment.

External demand shaved off 0.3 percentage point from quarterly growth, less than a 0.4 percentage point subtraction expected by economists.

Some analysts say that if exports remain feeble, the Bank of Japan may be forced as soon as July to expand its stimulus by ramping up its purchases of government bonds and other assets.

First Published: Thursday, May 15, 2014 - 08:47
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