Japan economy returns to growth in Q1, avoids recession

AFP (TOKYO): Japan has sidestepped a recession with modest first-quarter growth, preliminary data showed on Wednesday (18 May), but the reading underscored how Tokyo’s drive for a firm recovery in the world’s number three economy is not gaining traction.

The country’s gross domestic product expanded by 0.4% between January and March - or 1.7% at an annualised rate - after a contraction in the last three months of 2015.

A consumer spending rebound helped drive the better-than-expected figures, but the leap year added another day of production - and spending - to the economy’s performance.

The fresh data will do little to buoy hopes for Prime Minister Shinzo Abe’s faltering growth blitz.

His bid to revive Japan’s once-soaring economy, dubbed Abenomics, 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 Japan Inc’s profits.

The latest GDP figures will throw a renewed focus on plans to raise Japan’s consumption tax again.

Local media have suggested Abe will delay hiking the levy over concerns it could damage the already fragile economy.

A tax rise in 2014 - seen as key to helping pay down Japan’s enormous national debt - was blamed for ushering in a brief recession.

This week, the government approved a ¥778 billion ($ 7.1 billion) extra budget in response to April’s deadly earthquakes, which prompted factory shutdowns in southern Japan.

“But even if the government delays the tax hike, it still needs to set a course for getting public finances on a sound footing, which is not an easy job,” said Yoko Takeda, chief economist at Mitsubishi Research Institute.

“The economy is in a tough situation with the strong yen hurting corporate earnings, stalled wages and a lack of confidence among consumers. There are going to be some tough times ahead.”

Wednesday’s figures came days before Japan hosts a meeting of the Group of Seven finance chiefs and a summit of their leaders next week.

The finance group - including US Treasury Secretary Jack Lew and European Central Bank President Mario Draghi - converge at a hot spring town north of Tokyo where two days of meetings kick off on Friday.