Japan's economic growth probably slowed in the first three months of this year from the rapid pace of the previous quarter, but improving domestic activity is helping the recovery broaden out, a survey showed on Wednesday. The poll of 25 economists produced a median forecast for a real 0.9 percent growth in Japan's January-March gross domestic product (GDP) from the previous quarter, or an annualised rate of 3.6 percent. The figures compare with a 1.6 percent expansion in the October-December quarter, which translated into a 6.4 percent annualised rate -- the strongest increase in 13 years. "In our research report in March, we anticipated a corrective slowdown after the breakneck pace in October-December, but the adjustment has not turned out to be so significant and we're likely to see continued strength," said Tetsuro Sawano, senior fixed income strategist at Mitsubishi Securities. The Cabinet Office is due to release the figures at 8:50 a.m. on May 18 (2350 GMT, May 17). While exports continued to drive growth, economists said a recovery in domestic demand appeared to be taking root, with an improvement in corporate earnings boosting capital spending and underpinning the labour market and household spending.
The median forecasts were for a 1.6 percent rise in corporate capital spending and a 0.5 percent pickup in private sector consumption. That would be the seventh straight quarter of growth in capital spending. "Because of the recovery in output and capacity utilisation, there is strong interest in capital spending, particularly among manufacturing firms," said Hideki Matsumura, economist at the Japan Research Institute. That could be translating into improving employment conditions, which in turn would give a lift to personal consumption, the largest part of Japan's economy. Japan's jobless rate fell to 4.7 percent in March, the lowest in three years. "There is a significant improvement in people's perception of the jobs market," said Taro Saito, economist at NLI Research Institute. Exports, however, remained the main force behind growth in the quarter, in particular the strong demand for Japanese capital goods in China.
That demand helped offset worries that exports could be dampened by the yen's strength, which took the currency to four-year highs against the dollar at the end of the quarter, The yen rose to around 103.40 to the dollar on March 31, up 14 percent from a year earlier, but the poll forecast that external demand contributed to 0.3 percentage point of the GDP growth in the first quarter. "External demand remains a contributor to growth as exports to Europe and Asia remain strong and exports to the United States show sign of recovery," said Hitoshi Asaoka, economist at Mitsubishi Research Institute. For the whole of fiscal year 2003/04 to March 31, economists' growth forecasts centred around three percent -- well above the government's official projection for 2.0 percent. The Paris-based Organisation for Economic Cooperation and Development forecast Japan's economy to grow a real 3.0 percent in calendar 2004 and 2.8 percent in 2005 in its semi-annual economic outlook report published on Tuesday///