Despite a serious decline in exports, Japan "breathed a sigh of relief" after escaping recession thanks to strong domestic demand.

Japan's economy is gradually emerging from recession and growing faster than expected in the first quarter of this year as a recovery in consumption after Covid-19 offsets the global economic woes, bolstering hopes for a sustained recovery.

Dù xuất khẩu giảm nghiêm trọng, Nhật Bản 'thở phào' thoát suy thoái nhờ nhu cầu nội địa mạnh mẽ

Japan's economy is gradually emerging from recession thanks to a strong recovery in domestic demand after Covid-19. (Source: Reuters)

However, signs of slowing growth in major economies such as the US, Europe and China are increasingly clouding the outlook for the export-dependent economy and raising concerns that the Bank of Japan (BoJ) may remove its massive stimulus program for the economy.

“Consumption will continue to underpin growth as the lifting of Covid-19 restrictions boosts spending on tourism and services,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “But the economic recovery will be moderate as weak overseas demand weighs on exports. Amid strong domestic demand, exports will slow down.”

Japanese government data on May 17 showed the world's third-largest economy grew 1.6% year-on-year in the January-March period, far exceeding the market's previous forecast of 0.7%, marking the first increase in three quarters.

Private consumption, which accounts for more than half of the economy, grew 0.6% in the first quarter of 2023 from the previous quarter, as the country reopened after the pandemic, helping boost services spending.

Japan's gross domestic product (GDP) hit a record 570.1 trillion yen ($4.22 trillion), partly due to rising prices, Economy Minister Shigeyuki Goto said.

However, Mr. Goto commented that caution is necessary in the context of emerging challenges and risks: "We must pay close attention to the global economy, the impact from financial markets and the increase in interest rates on the real economy."

Strong domestic demand offset a decline in exports, which fell 4.2% in January, extending to March, marking the first decline in six quarters.

"Demand for commodities globally has been weak, so exports are weak. Industrial production is also weak, so we cannot expect manufacturers to perform well in the near term," said Toru Suehiro, an economist at Daiwa Securities.

Rising fuel and food costs, which have pushed Japan's consumer inflation above the BoJ's 2 percent target, could weigh on consumption unless wage increases are sustained, analysts say.