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Japan's Q1 GDP expands by annualized 1.6%

Economy rebounds more than expected on post-COVID spending

The Tokyo skyline. Domestic private consumption in Japan grew 0.6% quarter-on-quarter in the first quarter, and capital expenditures gained 0.9%.

TOKYO -- Japan's gross domestic product for the January-March quarter expanded 0.4% from the previous quarter on a real seasonally adjusted basis, excluding the effect of price changes, and 1.6% on an annualized basis, according to preliminary figures released by the Cabinet Office on Wednesday. This was the first positive growth in three quarters. The economy's recovery from the coronavirus pandemic and strong consumer spending boosted overall growth.

Real GDP for the fiscal year that ended in March increased 1.2% year on year, the second consecutive year of positive growth.

The annualized growth rate for the quarter was much higher than the median 0.7% of forecasts compiled in advance by QUICK. Compared to the previous quarter, domestic demand contributed 0.7 percentage points and foreign demand was minus 0.3 percentage points.

Personal consumption, the pillar of domestic demand and the majority of GDP, increased by 0.6% on the quarter, marking the fourth consecutive quarter of positive growth. The recovery from the pandemic led to broad-based growth in service-related sectors such as food services, lodging and transportation.

Durable goods such as automobiles expanded thanks to the easing of supply constraints on semiconductors. As for nondurable goods, food products made a negative contribution due to high prices, but electricity consumption increased and turned positive overall.

Capital investment, another pillar of domestic demand, increased 0.9%, the first increase in the past two quarters. Investment in automobiles, including company cars and trucks, grew. Residential investment rose 0.2%, the second consecutive quarter of positive growth.

Public investment rose 2.4%, the fourth consecutive quarterly increase. The pace accelerated from the previous quarter's 0.2%, mainly due to progress in the execution of the second supplementary budget for fiscal 2022, which was approved in December. Government spending was flat due to a decrease in the cost of COVID vaccinations.

Exports fell 4.2%, the first decline in six quarters. Although consumption by foreign visitors to Japan, which is classified as an export in the calculation, increased due to the relaxation of entry restrictions from October, exports of semiconductor production equipment decreased due to the softening of the global semiconductor market. Automobiles and construction machinery also declined.

Imports fell 2.3% due to stagnant economic activity in China caused by the spread of the coronavirus. Foreign demand, calculated by subtracting imports from exports, made a negative contribution.

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