Japan’s economy advanced for a fifth straight quarter, the longest expansion in a decade, supported by
continued strength in exports. Domestic demand rebounded, but economists question whether this strength will continue.
Gross domestic product increased by an annualized 2.2 percent in the three months ended March 31 (estimate +1.7 percent), accelerating from a revised 1.4 percent in the previous quarter. Private consumption gained 0.4 percent in the first quarter from the previous three months (estimate +0.5 percent). Business spending rose 0.2 percent (estimate -0.4 percent). Net exports, or shipments less imports, added 0.1 percentage point to GDP (estimate +0.1 percentage point).
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,” said Kuwahara.
“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,” said Shiono. “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.