— Adds Details, Official, Economist Comments From 18th Paragraph
TOKYO (MNI) – Japan’s economy expanded by 1.0% quarter-on-quarter
in January-March, improving sharply from the flat reading (revised up
from -0.2%) in the October-December quarter, the Cabinet Office said on
Thursday.
On an annualized basis, GDP surged 4.1%, accelerating from a
revised 0.1% rise (-0.7% in the previous report) for the fourth quarter
of 2011. GDP has now shown gains for three quarters in a row.
The annualized 4.1% rise came in stronger than the median forecast
of +3.5% made by economists in an MNI survey, and it was much stronger
than Japan’s potential growth rate, estimated by the Bank of Japan to be
about 0.5%.
Economic and Fiscal Policy Minister Motohisa Furukawa said in a
statement that Q1 growth was led by strong domestic demand backed by
demand for rebuilding the earthquake-hit northeast and revived subsidies
for buying low-emission vehicles.
The strong growth was also supported by a rebound in exports now
that Japanese carmakers and electronic firms are free of dampening
effects of last year’s major flooding in Thailand that cut supply
chains, and given that the U.S. economy is on the mend, he said.
“Japan’s economy continues moving upward,” he concluded.
Looking ahead, the ministers said: “In the April-June quarter
onward, a modest economic growth is expected to continue, thanks to
support from reconstruction demand.”
“However, we have to keep a close eye on the risk of a renewed debt
crisis in Europe,” he warned.
Furukawa said it is vital for Japan to shift to broader private
demand-led economic growth from reconstruction demand-dependent gains
in order to achieve sustainable growth in the long run.
The data showed that Q1 economic growth was due mainly to continued
sharp above-trend increases in personal consumption, which pushed up GDP
by 0.7 percentage point in January-March after making a 0.4 positive
contribution in the previous quarter.
The largest component of GDP was pushed up by leap-year effects and
government subsidies for buying low-emission vehicles, rising 1.1% on
quarter in Q1, accelerating from +0.7% in Q4, and soaring 4.4% at an
annualized pace.
Also, government investment and private inventories pushed up the
Q1 GDP.
Public capital investment surged 5.4% in Q1, posting the first q/q
gain in three quarters, on demand for rebuilding the northeastern
regions hit by the March 2011 earthquake disaster.
This added 0.3 percentage point to Q1 growth after making a
slightly negative contribution (-0.0 point) in the Q4.
Public outlays for reconstruction of the disaster-hit areas have
totaled around Y19 trillion, equivalent to about 4% of Japan’s nominal
GDP, the Bank of Japan has estimated.
Private-sector inventories pushed up Q1 GDP by 0.4 percentage point
after a revised -0.4 percentage point contribution in the previous
quarter.
Net exports — exports minus imports — pushed up the Q1 GDP by 0.1
percentage point vs. a revised -0.7 percentage point contribution in Q4.
Japanese manufacturers are recovering from the yen’s rise to record
highs last year, from slower global demand as well as from supply chain
breakdowns first caused by the earthquake, then by Thai flooding.
“It is not easy for Q2 GDP to show higher growth than in Q1,” a
senior Cabinet Office official told reporters, given that Q1 personal
consumption was boosted by some temporary factors such as leap year and
by the revival in December of government’s subsidies for buying greener
cars.
The average GDP forecast by economists for the April-June quarter
is an annualized +2.19%, according to the monthly survey by the Japan
Center for Economic Research released earlier this week.
On the downside, Q1 business investment (capex) tumbled by 3.9% on
quarter, or an annualized drop of 14.8%, trimming Q1 GDP growth by 0.5
percentage point.
The slump in “private non-residential investment” was partly a
correction from the 5.2% q/q surge in October-December, an annualized
rate of +22.3%.
And contrary to forecasts for a slight gain, housing investment
slipped 1.6% q/q (-6.1% annualized) in Q1, making a slight negative
contribution to GDP (-0.0 percentage point).
The unexpected Q1 dip was probably due in large part to the fact
that housing construction was slower than housing starts suggested,
given that GDP data count only completed buildings.
Housing starts in Japan rose 5.0% on the year to 66,597 units in
March, a second straight rise after +7.5% in February, according to data
from the Ministry of Land, Infrastructure, Transport and Tourism.
Economists expect Japan’s economy to continue to move out of its
slump and onto a moderate recovery path.
Taro Saito, senior economist at NLI Research Institute, said
earlier data confirm Japan’s economy is on the mend, pulling out of the
lull seen in late 2011, led by domestic demand.
“Japan’s economy is most likely to maintain a recovery trend in the
April-June quarter, as conditions surrounding the export market are
improving and domestic demand is likely to maintain solid growth due to
reconstruction work in the earthquake-hit area,” he said.
“While there are uncertainties about prospects for Greece and about
power shortages, Japan can withstand these obstacles and extend its
recovery trend into the July-September quarter,” he argued. “This
scenario, of course, assumes that Greece won’t leave the euro or that
Greece’s withdrawal from the euro won’t trigger a global rout.”
From a year earlier, Q1 GDP rose 2.7%, the first y/y rise in five
quarters after dipping 0.5% in Q4.
In nominal terms, Q1 GDP gained 1.0% on quarter, or an annualized
4.1%, marking the first drop in two quarters after rising 1.5%
(annualized 6.1% in Q3).
In fiscal 2011, GDP contracted slightly (-0.0%), the first drop in
two years after growing 3.2% in fiscal 2010.
Deflation continued to decelerate in the first quarter, the GDP
data showed.
The GDP deflator was down 1.2% from a year earlier after falling
1.9% in the fourth quarter. The Q1 figure was the smallest drop since
being unchanged in the July-September quarter of 2009.
The domestic demand GDP deflator fell 0.3% in Q1, compared with
-0.6% the quarter before.
tokyo@marketnews.com
** MNI Tokyo Newsroom: 81-3-5403-4833 **
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