Japanese financial system grew 0.5% in first quarter, in information that would cool speak of delaying tax hike

The nation’s economy unexpectedly grew at an annualized rate of 2.1 percent in the January-March quarter despite sluggishness in capital spending and exports due to a slowdown in the Chinese economy, government data showed Monday.

The result may cool a growing debate over an October tax increase for now.

The preliminary reading of inflation-adjusted gross domestic product, the total value of goods and services produced in the country, followed a revised expansion of 1.6 percent in October-December.

It compared with an average forecast of a 0.18 percent contraction made by private-sector economists polled by Kyodo News.

On quarter, the world’s third-largest economy grew a real 0.5 percent, according to the Cabinet Office.

Private consumption, which accounts for more than half of the Japanese economy, dipped 0.1 percent from the previous quarter. Capital expenditure decreased 0.3 percent and exports were down 2.4 percent.

In nominal terms, or unadjusted for price changes, Japan’s economy grew an annualized 3.3 percent and 0.8 percent on quarter.

As for fiscal 2018, the Japanese economy expanded 0.6 percent in real terms, compared with 1.9 percent growth in fiscal 2017.

The latest figures come amid uncertainty over the global economy, including U.S.-led trade tensions, Brexit and other factors.

Prime Minister Shinzo Abe has backtracked twice from a pledge to raise the tax to 10 percent from 8 percent, and there is speculation he could change his mind yet again ahead of an Upper House election expected in July.

The fate of the tax hike is becoming more uncertain, with the outlook for the Japanese and global economies in the second half of the year now taking on far more importance, said Masaaki Kanno, chief economist at Sony Financial Holdings Inc.

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