Fiscal stimulus puts charge into economy

Gains may be short-lived as Europe looks for footing


The economy grew an annualized real 4.1 percent in the three months through March from the previous quarter, beating market forecasts on strong consumption supported by the government’s fiscal stimulus, the Cabinet Office said Thursday.

The result added to the view the world’s third-largest economy is recovering from the March 2011 earthquake and tsunami, also helped by the acceleration of public works projects for reconstruction following the disasters, as well as a pickup in exports that signaled a recovery in the U.S. economy and diminished effects of the massive flooding in Thailand last fall.

But economists were not entirely optimistic, saying the economy was boosted by temporary factors and warning of downside risks to growth amid the gloomier outlook for the world economy, given the sovereign debt crisis in Europe.

In a preliminary report, the Cabinet Office said the nation’s real, or inflation-adjusted, gross domestic product grew 1.0 percent from the October-December period for the third straight quarter of expansion. Private-sector analysts had projected an average 0.8 increase and annualized 3.3 percent growth in a Kyodo News survey.

The government also revised upward figures in the previous quarter, saying the economy expanded 0.03 percent, compared with an earlier 0.2 percent contraction.

As for fiscal 2011, which ended March 31, the office said GDP — the total value of goods and services produced domestically — declined 0.01 percent against the 3.2 percent growth in fiscal 2010, with the office blaming the poor performance on weak exports.

The first-quarter GDP “jumped beyond our expectations,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., adding that the growth had been driven by domestic demand.

But Kanno also said the economy would not be able to sustain such a high level of growth, pointing to a likely slowdown in public investment and private consumption. GDP “can be said to retain positive growth. But it will slow down slightly amid uncertainty over overseas economies,” he added.

Economic and fiscal policy minister Motohisa Furukawa acknowledged Japan’s economy is still in a “mild deflationary phase.”

“Many private-sector think tanks have forecast (the economy would continue to log) positive growth in the April-June quarter,” Furukawa told reporters, adding the government “will make every effort to avert any downward swing in the economy” in the wake of the eurozone’s debt crisis and concerns over possible power supply shortage in Japan this summer.

In the first quarter, private consumption, which makes up some 60 percent of Japanese GDP, rose 1.1 percent for the fourth-straight quarterly increase as household spending on durable goods, notably cars, expanded after the government reintroduced in December a subsidy program for purchases of environmentally friendly vehicles.