Japan’s gross domestic product grew at a faster-than-expected pace in the first quarter of the year, but concerns still linger about the health of the country’s economy and market speculation is mounting that prime minister Shinzo Abe will delay a sales tax hike planned for next year.
Japan’s economy grew an annualized 1.7 percent in the first three months of the year, making a rebound from an annualized drop of 1.7 percent in the fourth quarter of last year, the country’s Cabinet Office said Wednesday. Private consumption rose 0.5 percent, marking a sharp improvement from a 0.8 percent drop the previous quarter. Exports for the quarter rose 0.6 percent.
Goldman Sachs attributed much of the GDP surge to a combination of factors, including the leap-year effect and the fact that fourth-quarter GDP numbers were revised downward. The bank’s economist Naohiko Baba said “underlying growth was still weak” and the rebound effect was limited.
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Baba went on to state that he expects downside risk in the April to June quarter, stemming from the “dropout” of the leap-year effect, the impact of the recent Kumamoto earthquakes and low demand for capital expenditures.
“Today’s preliminary January-March real GDP data are difficult to interpret, and for this reason are unlikely to be a decisive factor for the government’s key decisions, such as whether to postpone the planned consumption tax hike and introduce additional spending measures.”
Japan’s controversial sales tax hike is slated to go into effect in April 2017, lifting the tax rate to 10 percent from its current level of 8 percent. The increase was originally set to kick into effect in October of 2015 but Abe postponed it in late 2014 when Japan fell into an unexpected recession. Several economists and analysts have warned against a higher tax rate for Japan, which already raised its sales tax rate once recently in April 2014, from 5 percent to 8 percent — a move that dented retail sales.
The GDP numbers failed to enthuse investors. Tokyo’s Nikkei 225 was nearly flat in early afternoon trade, while the Shanghai SSE was down 1.5 percent and the Hong Kong Hang Seng was losing 1.5 percent.