In a Surprise, Japan’s Economy Grew in the First Quarter, Despite a Slowdown in China

on May20
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TOKYO — Japan reported a surprising economic upswing in the first three months of the year, but the sunny figures belied continuing weaknesses that threaten the country’s prospects.

Japan’s economy, the third largest in the world behind the United States and China, grew at an annualized rate of 2.1 percent in the first quarter of 2019, according to data released on Monday by Japan’s Cabinet Office. Economists had expected the economy to shrink because of weakened demand from China as that economy slows.

A closer reading of the Japanese figures gave economists little reason to cheer. Private consumption and exports fell. Japan’s surprise performance stemmed in large part from a sharp drop in imports, which fell more dramatically than exports. That wider trade surplus enhanced Japan’s bottom line, even as it signaled that Japanese businesses and consumers are reluctant to spend.

“As weak imports should signify weak domestic demand, it is definitely not a reason to rejoice,” said Takuji Okubo, chief economist for Japan Macro Advisors, a research firm.

Since then, Japan has largely experienced modest growth, except for a brief fall into recession in 2014 following an increase in the country’s consumption tax. But much of that success coincided with China’s remarkable economic rise.

Japanese voters are increasingly concerned about the country’s economy, said Tobias Harris, a Japan analyst at the New York-based political consulting firm Teneo Intelligence, adding that the new data “suggest that there is something to the pessimism that has been captured both by government surveys and by leading indicators.”

Now that China’s economy is also slowing, Mr. Abe’s policies look set to face a difficult test.

He has committed to once again increasing the country’s consumption tax in October, this time to 10 percent from 8 percent. He says the increase is necessary to pay down the country’s huge debt and fund social programs that are expanding as the country’s population ages. Japan’s debt ratio is the highest among developed nations at roughly two and a half times the country’s annual economic output.

Mr. Abe has already delayed the tax raise twice. His insistence on sticking to the October deadline has drawn condemnation from across the political spectrum, including from members of his own party, who argue that raising the tax now could push the country into recession.

Nevertheless, the Abe administration has said it will take an economic shock on the scale of the 2008 financial crisis to derail its plans.

Speaking to reporters following the data release, Toshimitsu Motegi, the minister in charge of carrying out Japan’s economic policies, focused on the positive, saying that “we believe the trends in demand have not deteriorated.”

The plans to implement the consumption tax “remain unchanged,” he said.

Though Monday’s report was mixed, the strong headline figure may also open some space for Mr. Abe in his negotiations with the United States over a trade deal between the two countries.



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