According to government data released on Wednesday, Japan’s gross domestic product (GDP) grew at an annualised pace of 1.7% during the first three months of 2016. This is a rebound from the 1.7% economic contraction at the end of 2015, meaning Japan has avoided recession, defined as two successive quarters of contraction (1).
The increase in GDP is driven by increased government and consumer spending, though the effects are bolstered by downward revision of the previous quarter and an extra leap year day in February (2). Household spending, making up around 60% of Japanese GDP, increased 0.5% quarter on quarter, and government spending rose 0.7% (3).
However, business spending remained sluggish. Companies cut investment 1.4% compared to the previous quarter. That was the first decline in nine months. Economists argue businesses have held back on capital spending due to uncertainty about overseas economies, although net external demand contributed 0.2 positive percentage points to the overall GDP growth (4).
While the quarterly GDP results will be welcome news for Prime Minister Abe’s government, they reinforce the volatility seen over recent years and that further reform is required to pull free of the cycle of growth and expansion (2).
It has been speculated that in spite of the growth, the proposed increase in sales tax will be postponed to foster consumer spending, though senior government officials have stated that a decision has not yet been made (2).
Japan will play host to a G-7 summit at the end of May, providing Mr. Abe with an opportunity to reveal further policy steps to revive confidence in his pro-growth economic programme. (4)
- (1) – Japanese economy avoids recession – BBC News
- (2) – Japan Dodges Recession Thanks to Consumers, Public Spending – Bloomberg
- (3) – Japan’s GDP growth surprises with 1.7% gain – MarketWatch
- (4) – Japan’s Rebound Blunts Push for New Stimulus – The Wall Street Journey