By Tetsushi Kajimoto and Playing Kihara
TOKYO (Reuters) – Japan's economic growth changed unexpectedly in January-March, driven by net exports from exports and defies the forecasts for a contraction in the world's third largest economy.
The surprise expansion was mainly due to the fact that imports fell faster than exports, probably as a result of weak domestic demand, a point of concern for policy makers with planned sales tax scheduled to enter into force in October.
The survey of this challenge was private consumption and investment, both of which fell in the first quarter, while exports had the largest decline since 201
Japan's economy grew by an annual 2.1% The first quarter showed gross domestic product data (GDP ) on Monday, the market expected a decline of 0.2%. It followed a revised 1.6% expansion in October-December.
The soft patches behind the GDP figure can give live speculation that Prime Minister Shinzo Abe may postpone a twice-delayed increase in the tax return in October.
All the major components of GDP are negative, says Hiroaki Muto, chief economist at Tokai Tokyo Research Center.
"The economy has already peaked, so we probably have a mild recession," he said. "No one will oppose delaying sales tax."
The surplus for GDP growth was largely due to a 4.6% decline in imports, the largest decline in decades and more than a 2.4% drop in exports.
As imports fell more than exports, net exports – or shipments minus imports – increased 0.4 percentage points to GDP growth, the data showed.
Private consumption went down 0.1% and capital expenditure fell 0.3%, doubting politicians' belief that solid domestic demand would compensate for the pain of slowing exports.
There have been increasing conversations from some former political decision makers to delay sales tax due to worsening domestic and external conditions.
But Minister of Economy Toshimitsu Motegi set a brave face on Monday, saying there was no change in the government's plan to increase sales to 10% from 8% in October.
"There is no change in our view that fundamentals that support domestic demand are still solid," Motegi told reporters after data release.
But some analysts warn that Japan's economy will continue to face heads that can clog growth in coming quarters.
"Consumer spending is likely to remain weak because wages do not rise so much," said Kentaro Arita, senior economist at Mizuho Research Institute.
"In the second quarter, GDP could be zero or slightly negative because exports will remain weak. This, coupled with declining capital expenditures means there is a risk of a recession."
GDP data comes as the government's converging economic indicator flagged. the possibility that Japan may be in a recession when exports and factory production were hit by China's downturn and Chinese-American trade war.