TOKYO: Japan’s economy grew more than expected in the first quarter, data showed as it crawls back from a brief recession, but observers cautioned that a full recovery may still be some way off.
The 0.6 percent on-quarter expansion was bigger than revised 0.3 percent growth in the last three months of 2014, and beat market expectations for a 0.4 percent rise.
In annualized terms, the world’s number three economy expanded 2.4 percent January-March as capital spending and the housing market showed signs of strength, although exports dipped slightly and consumer spending was weak.
The relatively upbeat figures — outpacing a lacklustre 0.2 percent annualized rise in the US economy during the same period — may cool expectations of imminent stimulus from the Bank of Japan (BoJ), after a sales tax rise last year hammered consumer spending.
The sales levy hike — Japan’s first in 17 years — plunged the economy into recession and threw Prime Minister Shinzo Abe’s growth-boosting program, dubbed Abenomics, into question.
Investors embraced Wednesday’s growth figures, pushing the benchmark Nikkei 225 index up 0.85 percent to a fresh 15-year high of 20,196.56, as Japan wraps up its latest earnings season with many firms reporting strong profits, largely owing to a weak yen.
“The January-March (gross domestic product) growth data were good... and buoyed sentiment,” said Takuya Takahashi, senior strategist at Daiwa Securities.
“Corporate earnings for the fiscal year to March were (also) generally good and many companies took measures to return surplus to shareholders,” he added, referring to share buybacks and dividend hikes.
But some are warning that, despite the pick-up, Japan’s full-year growth may come in flat, as firms’ rising inventories underscore still-lacklustre consumer spending.
“The acceleration in GDP growth last quarter was mostly due to a jump in inventories, and a range of indicators point to a slowdown in the second quarter,” Marcel Thieliant from Capital Economics said in a commentary.
“Industrial production in March was four percent below its January peak, and the drop in the manufacturing PMI (purchasing managers’ index) to a multi-month low in April suggests that conditions are unlikely to improve quickly.”
The sales tax rise from 5.0 percent to 8.0 percent was introduced to help pay down Japan’s enormous national debt, one of the biggest among wealthy nations. Faced with souring economic data, Abe delayed a second hike planned for this year to 2017.
And it remains unclear if the wage hikes announced by many of Japan’s biggest companies after annual negotiations would convince consumers to buy more.
“Consumer spending is likely to remain weak until better results of annual wage negotiations between large companies and unions spill over to small- and medium-sized enterprises,” said Harumi Taguchi, principal economist at IHS Economics in Tokyo.
“The keys to growth are the extent of the benefits from low oil prices and wage increases at large companies flowing into the broader economy.”
Japan has been struggling with a string of tepid data recently, particularly on the price side as efforts to reach the BoJ’s 2.0 percent inflation target look increasingly out of reach.
The central bank, which kicks off a two-day policy meeting Thursday, has now conceded the original timeline for achieving its goal would be missed, while it has also cut its growth forecasts.
Japanese inflation in March picked up for the first time in 10 months, but stripping out the impact of the sales tax rise, it came in at a tepid 0.2 percent.
Sustained inflation is a cornerstone of Abe’s drive to conquer years of deflation and kickstart growth in the economy.
Deflation may sound good for Japanese consumers, but it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line.
That, in turn, hurts producers and holds back their expansion and hiring plans, which is bad news for the economy.
Japan economy picks up pace in wobbly recovery
Japan economy picks up pace in wobbly recovery
Kuwait PMI climbs to 54.5; Egypt falls to 48.9 in February: S&P Global
RIYADH: Kuwait’s non-oil private sector continued to expand in February, supported by growth in output and new orders, while business conditions in Egypt weakened, an economy tracker showed.
According to the latest Purchasing Managers’ Index surveys released by S&P Global, Kuwait’s PMI rose to 54.5 in February from 53 in January, extending the current run of improving business conditions to a year and a half.
The expansion in Kuwait’s non-oil sector aligns with a broader trend across the Gulf Cooperation Council region, where countries are pursuing diversification strategies to reduce reliance on crude revenues.
The surveys were conducted before regional tensions escalated following US and Israeli strikes on Iran and Tehran’s retaliatory attacks across the Gulf, which have since disrupted markets and energy trade.
Commenting on the February survey, Andrew Harker, economics director at S&P Global Market Intelligence, said: “Growth momentum strengthened in Kuwait’s non-oil private sector in February as companies were again successful in securing new business.”
According to the report, key factors supporting expansions in new orders and business activity included the provision of good-quality products at competitive prices and successful marketing efforts.
The rate of job creation was modest in February and unchanged from January.
Firms continued hiring staff for advertising and project-related work, resulting in a twelfth consecutive monthly increase in employment.
“The main issue facing firms at present is being able to grow workforce numbers quickly enough to keep up with workloads,” said Harker.
He added: “With backlogs rising at a fresh record pace for three months in a row now, fulfilling customer requirements in a timely manner is becoming more difficult, although companies did expand their purchasing activity at a near-record pace in February to help make sure the necessary materials are available going forward.”
Overall input cost inflation hit a nine-month high in February, with both purchase prices and staff costs rising at faster rates compared to January.
The report added that some companies increased their selling prices in response to higher input costs.
Regarding the outlook, companies expressed optimism, with sentiment reaching a 26-month high in February, driven by product variety, competitive pricing and good-quality customer service.
Egypt’s non-oil sector contracts
Egypt’s non-oil private sector contracted in February, driven by rising costs and softer demand, according to S&P Global.
The country’s PMI fell to 48.9 in February from 49.8 in January.
Although the reading remained below the 50 neutral threshold, it was still above its long-run average of 48.3, the report said.
Output declined for the first time in four months in February, and all five sub-components of the PMI indicated weaker business conditions compared to January.
“The February PMI data pointed to a slowdown in the Egyptian non-oil private sector as activity curtailed and new order volumes weakened,” said David Owen, senior economist at S&P Global Market Intelligence.
That said, he added that the dip followed an unusually strong run in business performance, and that the latest figures are consistent with annual GDP growth of approximately 4.5 percent.
Egyptian non-oil companies also reported a decline in order book volumes during the month.
Sales fell across manufacturing, wholesale and retail, and services, while construction was the only monitored sector where new orders improved.
Employment fell for the third consecutive month in February, though at a slower rate, as companies continued active job cuttings and hiring freezes.
The report revealed that cost pressures accelerated across the month, driven by rising global commodity prices, particularly oil and metals.
Selling prices, however, were up only fractionally, with just a small proportion of firms choosing to pass cost increases onto their customers.
“Egyptian non-oil companies were notably exposed to the uplift in global commodity prices, with firms emphasising the impact of higher prices for oil and metals, resulting in the sharpest increase in business costs for nine months and hitting margins at a time when firms are reluctant to raise their selling prices,” said Owen.
He concluded: “Firms will therefore be keen to see commodity markets settle, especially as recent periods of high input cost inflation have typically constrained business output.”
