Japan sidestepped a recession with annualised growth of 1.7% in the first quarter of 2016, preliminary data showed on Wednesday. But the reading underscored how the drive for a firm recovery in the world’s number three economy is not gaining traction.
The improvement in the country’s gross domestic product between January and March at a quarterly rate of 0.4% 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 buoy hopes for Shinzo Abe’s faltering growth blitz. The prime minister’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 resurgent yen.
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 over concerns it could damage the already fragile economy.
A tax rise in 2014 – seen as key to helping pay down Japan’s enormous national debt – was blamed for ushering in a brief recession.
This week the government approved a 778bn yen (£4.9bn/$7.1bn) extra budget in response to April’s deadly earthquakes, which prompted factory shutdowns in southern Japan.
“But even if the government delays the tax hike, it still needs to set a course for getting public finances on a sound footing, which is not an easy job,” said Yoko Takeda, chief economist at the Mitsubishi Research Institute.
“The economy is in a tough situation with the strong yen hurting corporate earnings, stalled wages and a lack of confidence among consumers. There are going to be some tough times ahead.”
Japan will host a meeting of the Group of Seven finance chiefs and a summit of their leaders next week.