Japan dodges recesssion, economy smashes forecasts with 1.7% growth in Q1

Japan's economy expanded at the fastest pace in a year in the first quarter, thanks in part to a leap year consumption boost. Analysts say the rebound is not strong enough to dispel concerns over a contraction this quarter.
People trying out laptops displayed at an electronics retail store in Tokyo in this Nov, 16, 2014, file photo.
People trying out laptops displayed at an electronics retail store in Tokyo in this Nov, 16, 2014, file photo.PHOTO: REUTERS

TOKYO (REUTERS) - Japan's economy expanded at the fastest pace in a year in the first quarter on robust private consumption and exports, complicating Prime Minister Shinzo Abe's decision on whether to delay a planned sales tax hike next year.

The world's third-largest economy expanded by an annualised 1.7 per cent in January-March, much more than a median market forecast for a 0.2 per cent increase and rebounding from a 1.7 per cent contraction in the previous quarter, Cabinet Office data showed on Wednesday (May 18).

Many analysts believed the economy may have contracted for a second straight quarter - technical recession - when excluding the boost to consumption from the extra day for the leap year.

But private consumption rose 0.5 per cent, more than double the median market forecast, as households boosted spending on televisions, food and beverage and recreation, the data showed.

Foreign demand for Japanese goods also added 0.2 percentage point to gross domestic product (GDP) growth, as exports gained 0.6 per cent.

On quarter-on-quarter basis, the economy grew 0.4 per cent in January to March.

Government officials have said the data will be crucial in Mr Abe's decision on whether to postpone a sales tax hike scheduled for next year.

The data also comes ahead of a Group of Seven leaders' summit that Mr Abe will host in western Japan next week, where he hopes to foster agreement on the need for global coordination of policies to jump-start growth.

Japan's economy contracted in the final quarter of last year as slow wage growth hurt private consumption, while exports felt the pinch from sluggish emerging market demand and the pain of a strong yen.

Mr Abe raised the sales tax to 8 per cent from 5 per cent in 2014, which tipped the economy into recession. That led Mr Abe to delay a second tax hike to 10 per cent by 18 months.