Japan's growth surprises

Economy expands by 3.3%, but experts say spurt won't last

BY YUKA HAYASHI Tokyo

JAPAN'S ECONOMY grew at a surprisingly robust pace in the first quarter as strong demand from emerging economies and resource-rich nations more than offset dwindling exports to the U.S. But economists said such a vigorous pace is unlikely to be sustained.

Gross domestic product in the January-March period expanded at a preliminary annual rate of 3.3%, the government said Friday. It was the fastest pace since the first quarter of last year, when the economy expanded at a 4.6% rate. The mostrecent growth far exceeded the pace considered normal for Japan's economy, which economists estimate is between 1.5% and 2%. GDP, the broadest measure of economic activity, was up 0.8% in the first quarter from the fourth.

Economists caution that exports have started losing momentum in recent weeks, with increases in Chinabound goods wearing off. Also, food and gasoline prices have been rising sharply recently, pushing Japan's core consumer-price index to a 10-year high of 1.2% in March. This will likely crimp domestic consumer spending as wage gains won't be able to keep pace with inflation. Japan's preliminary GDP numbers often are revised sharply in the following weeks, making economists wary about their reliability.

"There is no change in the view that the economy is leveling off," Economy Minister Hiroko Ota said at a news conference. "Furthermore, we must be cautious about the future of the economy."

Corporate capital spending shrank 0.9% in the first quarter after expanding for two quarters. Economists interpreted this as a sign of growing cautiousness among companies.

Still, the latest figures showed that at least until March, Japan's economy was quite strong. Despite declines in shipments to the U.S., exports increased 4.5%from the previous quarter-an annual rate of 19.5%, the fastest pace in four years. China, Russia, Australia and nations in the Middle East showed strong appetite for Japanese goods.

Domestic private consumption also showed surprising resilience, rising 0.8% from the previous quarter, helped in part by the leap year's added day. Private housing investment, which had declined steeply for the previous three quarters because of a tightening in building safety standards last summer, rebounded 4.6% from the fourth quarter.

"The leap year and external demand were the two main factors" behind the strong first-quarter data, said Junko Nishioka, an economist for ABN Amro Securities in Tokyo. `But even after they are discounted, we must say the performance of the Japanese economy has been quite solid!'

Fourth-quarter growth from the third was revised down to 0.6% from 0.9%. That also aided the first-quarter figures, by comparison. Fourthquarter annualized growth was revised to 2.6% from 3.5%.

-Takeshi Takeuchi contributed to this article.