Japan sidesteps recession with 1.7% growth in Q1

Japan sidestepped a recession with annualised growth of 1.7 per cent in the first quarter of 2016 as gains in government and consumer spending compensated for a slide in business investment.

But the data also underscored how the drive for a firm recovery in the world’s third biggest economy is not gaining traction. Capital expenditure fell by 1.4 per cent during the quarter, indicating that businesses remain reluctant to spend.

The improvement in Japan’s gross domestic product between January and March at a quarterly rate of 0.4 per cent came after a contraction in the last three months of 2015. A consumer spending rebound helped drive the better-than-expected figures but the leap year added another day of production – and spending – to the economy’s performance.

The fresh data will do little to boost hopes for Prime Minister Shinzo Abe’s faltering growth blitz. Abe’s bid to revive Japan’s economy, dubbed Abenomics, was shaken by a bloodbath on equity markets at the start of the year and a stronger yen which has gained 10 per cent against the dollar this year.

The latest GDP figures will throw a renewed focus on plans to raise Japan’s consumption tax again.

Local media have suggested Abe will delay hiking the levy to 10 per cent from the current 8 per cent over concerns it could damage the already fragile economy.

A tax rise in 2014 which was touted as a key to neutralize Japan’s enormous national debt, was blamed for ushering in a brief recession.

This week the government approved a 778bn yen ($7.1bn) extra budget in response to April’s deadly earthquakes, which prompted factory shutdowns in southern Japan.

In January the Bank of Japan shocked markets with a negative rate policy, which was designed to boost lending to people and businesses, but the move was widely criticised as a desperate bid to prop up Tokyo’s faltering economic plan.

Last month, a BoJ survey showed sentiment among Japan’s biggest manufacturers dropped to its lowest level since Abe started his much-vaunted programme to boost growth.

The International Monetary Fund in April cut its growth forecast for Japan and warned that inflation would sink into negative territory during 2016.