Growth of Japan's economy, the worst is over or is not

According to a Reuters poll, Japan's economy grew 0.9 % in the three months to June, marking the first expansion in five quarters on the back of exports and government stimulus spending. The growth in the world's No.2 economy provided further evidence that the worst of the damage wrought by a global financial crisis may be over. However, analysts and policy-makers are wary about the outlook, which depends on a recovery in world demand, saying that it will be a long road to a sustained recovery.

The preliminary figure, which fell slightly short of a median market forecast of a 1.0 % increase, puts Japan in the first camp of G7 countries that have pulled out of recession, along with Germany and France. It follows a revised 3.1 % contraction in January-March and a 3.5 % decrease in the final quarter of last year, which was the biggest drop on record. On an annualized basis, Japan's economy grew 3.7 % from the first quarter, the fastest since January-March 2008, in comparison with a 1.0 % contraction in the United States in the same quarter. The euro zone economy shrank 0.1 % after a 2.5 % fall in the first three months.

Economists expect Japan's economy to continue to show moderate growth in the coming quarters. But they say that the recovery could lose momentum later this year when a temporary boost from government stimulus steps, such as one-off payments and subsidies for energy-efficient cars and home appliances, peters out. A Reuters poll showed that Japan's economy is expected to grow 0.4 % in July-September from the previous quarter, followed by a 0.5 % increase in October-December.

External demand, the balance of exports and imports, contributed 1.6 percentage points to GDP, due in part to China's $585 billion stimulus package and other such spending rolled out by governments around the world to combat the global recession. Tokyo's stimulus steps helped private consumption, which accounts for about 60 % of the economy, to rise 0.8 % and public investment to increase 8.1 %.

Furthermore, capital spending dropped 4.3 %, smaller than a 5.9 % fall expected by economists but marking the fifth straight quarter of slump, as companies remain cautious about the outlook for global final demand. Japan's economy shrank more than most other major economies until January-March as its exports had plunged due largely to its specialization in machinery and high-end consumer products such as cars and flat-screen televisions. The positive growth figures may give some political ammunition to Prime Minister Taro Aso's Liberal Democratic Party, which polls show faces defeat in a general election on August 30.