World

Japan Reports GDP Rise

June 10, 1999 / 7:33 AM EDT / AP

After shrinking since the summer of 1997, Japan's economy grew a surprisingly robust 1.9 percent in the first three months of the year, largely because of increased public spending, the government announced Thursday.

If the growth continues, it will mark an end to the nation's longest recession since World War II.

Â"Nobody expected such high numbers,Â" said Akio Yoshino, director of Credit Suisse Asset Management in Tokyo. Â"Japan's prolonged contraction in the economy has at last bottomed.Â"

Economists in Tokyo had expected, on average, a 0.1 percent contraction.

Tokyo shares surged and the U.S. dollar fell against the yen after the GDP figure was leaked by a local paper just before the close of stock trading.

The rise in GDP -- a measure of all goods and services produced in a country -- followed a 0.8 contraction in the last quarter of 1998, the fifth straight quarter of decline.

For the fiscal year that ended March 31, Japanese GDP shrank by 2 percent, marking the second straight year of contraction. The previous year, GDP fell 0.4 percent.

The government said it expects the economy to grow 0.5 percent for the fiscal year ending in March 2000.

The growth in the first quarter came mostly from government spending. Japan has earmarked more than $500 billion in this year's budget for public works spending, tax cuts and other stimulus measures.

Private consumption and capital investment were better than expected but still not strong enough to drive economic growth alone without help from government spending, the Economic Planning Agency said.

Â"It is too early to decide just by looking at January-March data that the economy has bottomed out and will grow,Â" said Takafusa Shioya, an agency official.

Some private economists suggested that the cheery report did not accurately reflect the state of Japan's economy.

Â"These numbers aren't in line with other economic indicators that came out during the period,Â" said Andrew Shipley, economist at Schroders Securities Japan Ltd. Â"I would be skeptical.Â"

Economists warn that capital investment will probably remain weak because many manufacturers are saddled with too much production capacity.

Meanwhile, aggressive cost-cutting by Japanese companies has many people worried about losing their jobs, and consumers are reluctant to increase spending, which could keep any recovery from lasting.

April's unemployment rate among men hit a record 5 percent while Japan's overall jobless rate remained steady at a record high of 4.8 percent.