The final release of GDP data for Q1 showed the economy growing at a faster pace than previously thought, by 1% (q-o-q) compared with an earlier estimate of 0.9%. This was up significantly from the previous quarter’s 0.3% (q-o-q) increase, although in y-o-y terms GDP growth slowed from 0.4% in Q4 2012 to 0.2%. Domestic demand fuelled growth, with private consumption increasing by 0.9% (q-o-q) in Q1, up from a 0.4% rise in Q4. Additionally, business investment edged closer to positive territory after posting a 0.3% (q-o-q) decline (this followed a 1.5% drop in Q4 2012). Despite this, our panel’s 2013 investment forecasts have sunk further this month. There were signs of encouragement in other data: industrial production rose for a fifth consecutive month in April by 1.7% (m-o-m). This was much stronger than the 0.9% and 0.6% gains recorded in March and February, respectively. Furthermore, May’s PMI for manufacturing advanced at its fastest pace in almost a year thanks to a weak yen and increased demand for Japanese exports. The PMI rose to 51.5, up from 51.1 in April, marking its third consecutive month above the expansionary 50 threshold.
Prime Minister Shinzo Abe unveiled a third and final package of measures on June 5 aimed at revitalizing activity. In addition to loosening monetary policy and boosting public spending, this “third arrow” includes structural reforms to support long-term growth. The government has promised to set up “strategic economic zones” to attract foreign investment, as well as lower taxes and deregulation. Analysts remain sceptical while these promises remain on the drawing board, however, as few details were announced on how the government plans to achieve these goals.
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