Japan avoids recession with surprise Q1 growth of 1.7 percent

By Euronews with Reuters

Published on 18/05/2016 - 13:49

Japan's economy unexpectedly picked up in the first three months of 2016 with annualised growth of 1.7 percent but that was partly due to a boost to consumption as this is a leap year.

Japan’s economy unexpectedly picked up in the first three months of this year, growing 1.7 percent compared to the same period last year.

However that was partly due to a boost to consumption because this is a leap year so February had one extra day.

And financial analysts said the rebound was not strong enough to dispel concerns over a contraction in the current quarter.

The Chief Cabinet Secretary, Yoshihide Suga, who is the official government spokesman, was cautious telling reporters: “I believe we can confirm that Japan’s economy is continuing on a moderate recovery trend and is escaping from deflation.”

He added: “Private consumption is rebounding we believe, but admittedly at a slow pace.”

Japan’s economy contracted by the same amount – 1.7 percent – in the final three months of last year as slow wage growth cut domestic spending, while exports were hit by sluggish demand and the strong yen. That essentially means that over the two quarters there was zero growth.

Japan GDP rebound not enough to stave off stimulus https://t.co/kgU3kFWDKC by AlexFrangos</a> <a href="https://t.co/3HjZZBlbxD">pic.twitter.com/3HjZZBlbxD</a></p>— Wall Street Journal (WSJ) May 18, 2016

The question now is whether Prime Minister Shinzo Abe will delay a planned sales tax hike due in April 2017 and roll out additional fiscal stimulus.

A previous sales tax increase in 2014 tipped Japan’s economy into recession.

Hidenobu Tokuda, senior economist at Mizuho Research Institute, said: “The GDP data will likely press Abe to decide to delay a planned sales tax hike next year and to roll out additional fiscal stimulus worth at least 5 trillion yen (40.5 billion euro). I also expect the Bank of Japan to ease policy further in July given weak growth and tame inflation.”