Japan's economy grew faster than forecast during the first quarter of the year, fuelling hopes that the economy is recovering from last year's recession.
Real gross domestic product grew by an annualised 2.4 per cent between January and March, the Government said today (May 20th), up from 1.1 per cent the previous quarter and beating a 1.5 per cent growth forecast by economists surveyed by The Wall Street Journal.
While analysts said the first quarter growth rate was very positive, Capital Economics analyst Marcel Thieliant said in a note that the acceleration in economic growth for the period was mostly due to a jump in inventories and a plunging oil price. After stripping out inventories, the annualised pace of expansion was just 0.4 per cent, The Financial Times reports.
Many challenges remain
He added that a range of indicators point to a slowdown in the second quarter. "Industrial production in March was four per cent below its January peak, and the drop in the manufacturing PMI (Purchasing Manager's Index) to a multi-month low in April suggests that conditions are unlikely to improve quickly," he said.
Japan's economy has been facing difficulties in recent years including stagnant wages, a decline in business investment, a fall in business spending and a drop in consumer spending due to a sales tax increase from five to eight per cent in April 2014.
Critics have been vocal about the failure of "Abenomics", which combines aggressive monetary expansion, fiscal stimulus and structural reforms designed to revive the economy and end years of stagnation. However, a weakening yen over the past months has been giving a boost to the country's big exporters.
Japan's better-than-expected economic growth lifted the Nikkei to a 15-year high today. The benchmark Nikkei 225 rose 0.9 per cent to 20,196.6, the highest closing level since April 14, 2000.
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