TOKYO (AFX-ASIA) - Japan's first quarter to March GDP is expected to surge, with a consensus forecast of 1.7 pct growth over the previous quarter, on the rebound in exports as the global economy recovers, economists said. Forecasts range from a rise of 0.7 to 2.5 pct quarter-on-quarter, with annualised growth seen at between 2.7 and 10.2 pct, with a consensus of 6.8 pct. However, most believe the gains will not be extended into the following quarter due to a combination of fundamental, seasonal and statistical factors. The first three months of the year often mark the strongest quarter seasonally, while Japanese growth data is viewed by many as particularly volatile and prone to anomalies in the consumption segment. Investors want to see whether improved cashflow from export growth is feeding through to capital expenditure, a point on which economists are divided. They will also be carefully watching the data due to concerns that markets have already factored in high expectations, leaving little upside but plenty of opportunity for disappointment. The Ministry of Finance has recently tried to temper these high hopes. "I think the result of the January-March GDP will remain tough. I'm not optimistic about the GDP data," Finance Minister Masajuro Shiokawa said last week. "There may be something that requires us to reconsider our view of Japanese economic conditions, though we said the economy is bottoming out." Richard Jerram, chief economist at ING, warned that signs of a gradual recovery are unlikely to repeat the major equity-market reratings of the past. Jerram forecast first quarter GDP growth of 1.1 pct over the previous quarter, or 4.7 pct annualised. "A strong first quarter GDP release already looks to be discounted. Three years ago the release of first quarter 1999 GDP figures was the trigger for a major swing in consensus opinion on the direction of the economy," Jerram said. "However, most investors realise it is not sensible to take the quarterly GDP series too seriously due to the extreme volatility and the massive subsequent revisions," he said. "The first quarter 1999 initial release of 7.9 pct quarter-on-quarter annualised growth is now recorded as a 3.9 pct decline." Nikko Salomon Smith Barney economist Tomoko Fujii also notes the comparison between market expectations currently and those for the previous economic turnaround at the start of 1999. Her brokerage forecast quarterly growth of 1.1 pct, or 4.3 pct annualised. "Market forecasts for GDP are positive, unlike forecasts for the first quarter in 1999 ... so a high number should not come as a shock," Fujii said. "After the cyclical recovery is cemented in the GDP report, attention should return to Japan's long-term economic growth prospects, which are not likely to improve until capital is allocated more efficiently," she said. JP Morgan chief economist Masaaki Kanno forecast GDP growth of 1.1 pct quarter-on-quarter, or 4.5 pct annualised, but is also cynical about the relatively high figures, noting weak underlying potential. "Don't pay too much attention to the Q1 number. The underlying growth is zero or slightly positive quarter-on-quarter," Kanno said. The recovery is export-led but it is unclear that gains here will result in increased business investment, given the lag in corporate cashflow, and with household consumption suppressed by continued wage and job cuts. Exports for April rose for the first time in 13 months in value terms, while the trade surplus rose to 836.7 bln yen from 660.9 bln the year before. "Exports are not going to be a much of a surprise. They are going to be the main contributor," said Societe General economist Frank Benzimra, who forecast 0.9 pct GDP growth for the quarter, or an annualised 3.7 pct. "So far I don't see any evidence of the recovery in exports spreading to investment. The next question is how stable will it be," he said. "There is still a deterioration in labour conditions and so private consumption will remain bearish. I would say that there is some optimism in the first quarter but I am not very encouraged by the other quarters to come." Given the lack of underlying improvement in domestic economic or structural conditions, the externally-led cyclical recovery is also prone to shocks. "The tempo of Japan's cyclical rebound is rising," said Ron Bevacqua, in a note for Commerzbank Securities. "Employment and consumption should rise later in the fiscal year, with capex bottoming soon afterwards. A full-fledged recovery should begin (next) fiscal year," Bevacqua said. "However, the recovery is still narrowly based and thus vulnerable to shocks, particularly the continuing decline in the dollar, which could blunt the recovery in exports before consumption and capex have recovered," he said. The Bank of Japan has intervened in the foreign exchange markets over the past two weeks to prevent a rise in the yen in the face of an expanding trade surplus and weakening sentiment toward US investments. UBS Warburg economist Hiromichi Shirakawa, who forecast growth of 1.5 pct over the first quarter, noted uncertainty among economists over the trend in capital expenditure. "The MoF corporate survey (due Wednesday) is the key to first quarter GDP as views on capex growth are fairly divergent," he said. Nikko Salomon's Fujii described business investment as the "wild card" in the upcoming growth figures. "Some market participants reportedly expect an increase in this category. However, high-frequency data releases are still solidly in negative territory." Dresdner Kleinwort Wasserstein, forecasting quarterly growth of 1.8 pct and 7.8 pct annualised, noted the uncertainty on capex and also questioned the quality of the household consumption numbers in the growth data. "Exports are obviously expected to have risen, following the increases flagged in the monthly trade data," it said in a note. "Consumer spending is also forecast to have improved although in large part that may have been due to a rather suspect seasonal adjustment." However, a few said the apparent resilience of consumer spending may have some fundamental backing, despite the weakness of household income. "The real surprise comes from the strong consumer," said Jesper Koll, chief economist at Merrill Lynch, which forecast 1.5 pct quarterly GDP growth, or 6.2 pct annualised. "Since the start of the year, monthly consumer data has been persistently firm and aggregation suggests a 1.2 pct quarter-on-quarter rise in real consumption expenditure in January-March," Koll said. "This flies in the face of a sharp deterioration of household fundamentals. Real incomes fell 1 pct in the quarter and non-farm employment plunged an unprecedented 640,000 people since end-2001," he said. Koll attributes the anomaly to a shift of funds from bank deposits after the ending of unlimited government guarantees on time deposits, with some leakage into additional spending. "The savings rate must have come down and, more to the point, households appear to be 'monetizing' portfolio assets to fund spending," he said, though adding that there is no firm evidence to back this up yet.