- Economists from Capital Economics
Shinzo Abe and Haruhiko Kuroda can breathe out. Thursday's report showed the world's third largest economy clocked its fastest pace of growth in more than two years in the first quarter of this year, as consumers increased spending and companies stepped up on investment ahead of the tax hike. A widely anticipated report from the Cabinet Office showed gross domestic product soared an annualized 5.9% from the preceding quarter. More than 4.2% expected by analysts. On a quarterly basis growth reached 1.5%, far outpacing predictions for a 1% rise and accelerating from a 0.2% expansion seen three months earlier. Consumer spending rocketed at the fastest pace since the quarter before the previous tax hike in 1997, while capital spending advanced the most since 2011. A report showed they both gained 2.1% and 4.9% respectively. The data eases some of the pressure on the central bank for additional stimulus to support growth.
Nevertheless, the pickup is likely to be short-lived, with some economists seeing a contraction in the second quarter. Abenomics have boosted growth and inflation so far, this is not a question, however the true test will be further down the line, when the short-term boosts from the tax hike will wane. The government believes that the strength of the labour market will put additional pressure on wages, therefore, pushing higher purchasing power.
© Dukascopy Bank SA