Japan's economy grew faster than economists estimated last quarter as exports to Asia and emerging markets helped the nation weather the U.S. slowdown.
Gross domestic product expanded an annualized 3.3 percent in the three months ended March 31, better than the 2.5 percent median estimate of 32 economists surveyed by Bloomberg News, the Cabinet office said today in Tokyo. Japan's fourth-quarter GDP growth was revised to 2.6 percent from 3.5 percent.
A surge in shipments to emerging markets kept last quarter's growth above the average 2.1 percent of the past five years, even as exports to the U.S. fell for the quarter. Demand from commodity-producing countries also helped Japan grow quicker than the U.S.'s 0.6 percent expansion in the same period.
"A lot of the forward-looking indicators suggest that growth is going to slow sharply over the remainder of the year,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London. "Even if that's right, growth for the year as a whole will be still pretty good.''
The yen traded at 104.74 against the dollar at 9:13 a.m. in Tokyo, from 104.87 before the report.
From the fourth quarter, the economy grew 0.8 percent. In nominal terms, which don't take into account price changes, Japan expanded at half that pace. The GDP deflator, used to measure the effect of prices on growth, fell 1.4 percent, reflecting higher import costs.
Imported Inflation
"Imported inflation is squeezing domestic profit margins and wages,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo. "What that means is, the country is suffering a real loss in purchasing power.''
Net exports -- the difference between exports and imports -- accounted for most of Japan's growth, contributing 0.5 percentage point to the quarterly increase. Shipments overseas rose 4.5 percent and imports climbed 2 percent.
Domestic demand added 0.3 percentage point to the expansion last quarter, led by household spending and construction. Economists expected a 0.2 percentage point contribution. A 0.9 percent decline in business investment limited the gains.
Residential investment rose 4.6 percent from the previous three months, more than the 3.4 percent expected by economists. Housing starts are recovering after plunging since June because of a permit logjam caused by government regulations designed to stop building fraud.
Consumer Spending
Although consumer spending in the first quarter grew a more-than-expected 0.8 percent from the previous three months, higher prices and wage stagnation have made households the most pessimistic in five years. Economists said consumer spending would rise 0.6 percent.
The price of everyday goods rose at more than twice the pace of wages in March. Japanese workers are likely to see summer bonuses increase by the smallest amount since 2002, the Nikkei newspaper reported this week.
"Real income is declining'' and households may tighten their purse strings, said HSBC's Shiraishi. ``Inflation in prices of necessities has a negative impact on psychology.''
Economists expect demand from resource-rich countries will keep the economy from stalling in coming quarters. Goldman Sachs and Morgan Stanley last month dropped predictions the world's second-largest economy would slip into a recession, ending the nation's longest postwar expansion.
Exports to Asia, Europe
"Even if the U.S. goes into recession, demand from Europe and Asia should hold up reasonably well,'' said Capital Economics' Jessop. "Growth will do fine this year.''
Still, companies including Toyota Motor Corp. expect conditions to worsen as falling U.S. sales, higher commodity prices and a stronger yen erode earnings. Companies plan to pare orders of machinery, a key indicator of future capital outlays, by 10.3 percent this quarter.
"The negative effect of the U.S. slowdown is going to hit after a time lag,'' said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. "Both households and the corporate sector could be in pretty bad shape, at least through summer.''
The risk of weaker growth prompted the Bank of Japan last month to shelve its policy of gradually raising interest rates in its twice-yearly outlook. Central bank Governor Masaaki Shirakawa and his board are expected to hold the key rate at 0.5 percent, the lowest among major economies, at the end of the next policy meeting on May 20.
Spending Cuts
Toyota last week forecast its first profit decline in seven years and said it would cut spending on research and development. The automaker's U.S. sales fell for four consecutive months to March and soaring steel and energy costs, along with the yen's 6.5 percent gain against the dollar this year, have made each sale less profitable.
Toyota, Japan's largest company, isn't the only one facing a profit squeeze. Goldman Sachs Group Inc. says annual earnings at Japanese companies will fall for the first time in seven years. That could stifle investment and hiring.
The higher cost of imports probably means that the real GDP growth rate overstates the strength of the economy. Today's numbers may have also exaggerated growth because some components don't adjust for the extra day in February from the leap year, Hiromichi Shirakawa, chief economist at Credit Suisse Group in Tokyo, said before the report was released.
Gross domestic product expanded an annualized 3.3 percent in the three months ended March 31, better than the 2.5 percent median estimate of 32 economists surveyed by Bloomberg News, the Cabinet office said today in Tokyo. Japan's fourth-quarter GDP growth was revised to 2.6 percent from 3.5 percent.
A surge in shipments to emerging markets kept last quarter's growth above the average 2.1 percent of the past five years, even as exports to the U.S. fell for the quarter. Demand from commodity-producing countries also helped Japan grow quicker than the U.S.'s 0.6 percent expansion in the same period.
"A lot of the forward-looking indicators suggest that growth is going to slow sharply over the remainder of the year,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London. "Even if that's right, growth for the year as a whole will be still pretty good.''
The yen traded at 104.74 against the dollar at 9:13 a.m. in Tokyo, from 104.87 before the report.
From the fourth quarter, the economy grew 0.8 percent. In nominal terms, which don't take into account price changes, Japan expanded at half that pace. The GDP deflator, used to measure the effect of prices on growth, fell 1.4 percent, reflecting higher import costs.
Imported Inflation
"Imported inflation is squeezing domestic profit margins and wages,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo. "What that means is, the country is suffering a real loss in purchasing power.''
Net exports -- the difference between exports and imports -- accounted for most of Japan's growth, contributing 0.5 percentage point to the quarterly increase. Shipments overseas rose 4.5 percent and imports climbed 2 percent.
Domestic demand added 0.3 percentage point to the expansion last quarter, led by household spending and construction. Economists expected a 0.2 percentage point contribution. A 0.9 percent decline in business investment limited the gains.
Residential investment rose 4.6 percent from the previous three months, more than the 3.4 percent expected by economists. Housing starts are recovering after plunging since June because of a permit logjam caused by government regulations designed to stop building fraud.
Consumer Spending
Although consumer spending in the first quarter grew a more-than-expected 0.8 percent from the previous three months, higher prices and wage stagnation have made households the most pessimistic in five years. Economists said consumer spending would rise 0.6 percent.
The price of everyday goods rose at more than twice the pace of wages in March. Japanese workers are likely to see summer bonuses increase by the smallest amount since 2002, the Nikkei newspaper reported this week.
"Real income is declining'' and households may tighten their purse strings, said HSBC's Shiraishi. ``Inflation in prices of necessities has a negative impact on psychology.''
Economists expect demand from resource-rich countries will keep the economy from stalling in coming quarters. Goldman Sachs and Morgan Stanley last month dropped predictions the world's second-largest economy would slip into a recession, ending the nation's longest postwar expansion.
Exports to Asia, Europe
"Even if the U.S. goes into recession, demand from Europe and Asia should hold up reasonably well,'' said Capital Economics' Jessop. "Growth will do fine this year.''
Still, companies including Toyota Motor Corp. expect conditions to worsen as falling U.S. sales, higher commodity prices and a stronger yen erode earnings. Companies plan to pare orders of machinery, a key indicator of future capital outlays, by 10.3 percent this quarter.
"The negative effect of the U.S. slowdown is going to hit after a time lag,'' said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. "Both households and the corporate sector could be in pretty bad shape, at least through summer.''
The risk of weaker growth prompted the Bank of Japan last month to shelve its policy of gradually raising interest rates in its twice-yearly outlook. Central bank Governor Masaaki Shirakawa and his board are expected to hold the key rate at 0.5 percent, the lowest among major economies, at the end of the next policy meeting on May 20.
Spending Cuts
Toyota last week forecast its first profit decline in seven years and said it would cut spending on research and development. The automaker's U.S. sales fell for four consecutive months to March and soaring steel and energy costs, along with the yen's 6.5 percent gain against the dollar this year, have made each sale less profitable.
Toyota, Japan's largest company, isn't the only one facing a profit squeeze. Goldman Sachs Group Inc. says annual earnings at Japanese companies will fall for the first time in seven years. That could stifle investment and hiring.
The higher cost of imports probably means that the real GDP growth rate overstates the strength of the economy. Today's numbers may have also exaggerated growth because some components don't adjust for the extra day in February from the leap year, Hiromichi Shirakawa, chief economist at Credit Suisse Group in Tokyo, said before the report was released.
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