The economy grew at the fastest pace since 2011 in the January-March quarter as companies stepped up investment and consumers splurged before the first sales tax hike in 17 years in April.
Gross domestic product grew an annualized 5.9 percent from the previous quarter, the Cabinet Office said Thursday, more than a 4.2 percent median forecast in a Bloomberg News survey of 32 economists. Consumer spending rose at the fastest pace since the quarter before the 1997 tax increase, while capital spending jumped the most since 2011.
Thursday’s data add to signs the economy will have sufficient momentum to bounce back from the 3 point levy hike that is set to trigger a contraction this quarter. Such resilience lowers the odds of any imminent extra easing by the Bank of Japan and, if sustained, could persuade the government to proceed with a planned further increase in the tax rate to 10 percent.
“Maintaining capital spending growth will be a key factor” in sustaining the recovery, said Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo. “The situation doesn’t warrant additional BOJ easing for now.”
Consumer spending rose 2.1 percent from the previous quarter, the highest since a 2.2 percent increase in the first three months of 1997.
The run-up in demand ahead of the tax rise was more than expected, economy minister Akira Amari told reporters Thursday.
Capital expenditures rose 4.9 percent, the most since an 8.2 percent jump in the last three months of 2011, in the aftermath of the Tohoku earthquake and nuclear disaster. HSBC Holdings PLC economist Izumi Devalier said a statistical distortion may have pumped up the number.
The economy will contract 3.3 percent in the April-June period before expanding 2 percent the following quarter, according to a separate Bloomberg News survey conducted prior to Thursday’s data.
Expenditure soared in March on items such as refrigerators and computers, while vehicle sales rose in the seven months through March before slumping in April.
The hangover from the levy rise is starting for Japanese companies. Firms from Japan Tobacco Inc. to Uniqlo store operator Fast Retailing Co. and electronics maker Panasonic Corp. see weak retail spending in their outlooks.
Beer shipments in April fell 21 percent from a year earlier, the largest fall since at least 2005, after rising 17 percent the previous month.
For Toyota Motor Corp., the nation’s largest company, the decline in domestic demand adds to the carmaker’s challenges as it looks to fend off General Motors Co. and Volkswagen AG for global sales leadership.
The increase in business spending in the first quarter compared with a 1.4 percent expansion in the previous three months. Large companies plan to boost investment 0.1 percent in the year ending March 2015, according to a Bank of Japan survey.
“Capital spending was boosted by demand ahead of the tax increase, and we need to wait for April-June data to see if this trend continues,” said Takeshi Minami, chief economist at Norinchukin Research Institute Co. in Tokyo.
Exports rose 6 percent from the previous quarter and imports climbed 6.3 percent.