TOKYO: 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 goods overseas, possibly easing pressure on Prime Minister Shinzo Abe’s government to launch more fiscal stimulus to help spur growth.
Gross domestic product expanded an annualized 1.7% on quarter in the January-March period, according to government data released Wednesday. That was larger than a 0.3% increase forecast by economists surveyed by The Wall Street Journal, and came after a revised 1.7% decline in the last quarter of 2015. The stronger-than-expected data is welcome news for Prime Minister Abe who has tried to revive the world’s third-largest economy over the past three years with a brew of monetary and fiscal stimulus.
The growth figure contrasts with recent weak economic data that fueled expectations Mr. Abe would launch more fiscal stimulus to generate growth and that he would again hold off on a sales tax increase 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%.
Foreign demand was another bright spot in the data. 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. One weak part of the data was business spending. Companies cut back on business investment 1.4% on quarter, the first fall in three quarters. Economists say that businesses have held back on capital spending amid uncertainty about overseas economies.
Japan will host a G-7 summit at the end of May, providing Mr. Abe with an opportunity to unveil policy steps to revive confidence in his pro-growth program that could included fiscal stimulus, economists say. A close adviser to Mr. Abe has called for a big spending package to be passed in the fall. “I think it is fine to make it as big as Y10 trillion ($91 billion) if that is possible,” said Etsuro Honda in a interview with The Wall Street Journal last month.
