Mon, May 16, 2005 - Page 10 News List

Japan to report strong growth in first quarter

AFP , Tokyo

Japan is expected to report tomorrow that economic growth accelerated in the January-March quarter as increased corporate and consumer spending offset faltering export growth, economists say.

They said the expected strong performance will show a marked pickup from the last three months of last year, when a series of natural disasters hit spending and dampened sentiment.

The world's second-largest economy is expected to have grown 0.6 percent from the previous three months to give an annualized rate of 2.5 percent, according to an average of forecasts.

The estimates for GDP growth range from 0.4 percent to 0.8 percent quarter-on-quarter or 1.6-3.3 percent at an annualized rate.

In the three months to December, the economy grew 0.1 percent on the previous quarter for an annualized gain of 0.5 percent after slipping into a shallow recession in the second and third quarters of last year.

"The GDP data will confirm an outright turnaround of the Japanese economy driven by private sector demand," BNP Paribas chief economist Ryutaro Kono said.

A long-awaited upturn in consumer spending, the result of falling unemployment and growing confidence in Japan's renewed competitiveness, is fueling expansion, supporting exports as the engine of growth.

"Consumer spending seems to have done very well, reflecting improved labor market conditions," said Taro Saito, economist at NLI Research Institute.

NLI estimates consumer spending rose by a robust 1.1 percent in the first three months for the biggest rise since the final quarter of 2003, when the economy grew 7.0 percent annualized, its strongest in 13-1/2 years.

The average monthly unemployment rate dropped to 4.6 percent in the year to March from 5.1 percent the previous year.

Salaried household spending in the year to March rose 0.8 percent, the first rise in nearly a decade. Salaried household spending accounts for 60 percent overall consumer spending which in turn accounts for 55 percent of GDP.

Such spending is helping the service sector in particular, which employs the majority of Japanese workers.

"The non-manufacturing sector now seems to be taking over from the manufacturing sector as a growth driver of overall corporate capital spending," BNP Paribas' Kono said.

BNP forecasts corporate capital spending rose 0.8 percent in January-March after a 0.1 percent gain in October-December.

Looking ahead, however, some economists warned of the risks to growth posed by a slowdown in overseas demand and slower-than-expected inventory adjustment in the technology sector.

"A slowdown in Asian demand for semiconductor processing equipment and a deceleration of growth in durable goods demand in the US pose downside risks to production and Japanese corporate profits," said Daiwa Institute of Research senior economist Junichi Makino.

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