Japan economy grows 2.4 per cent, but pace of expansion slows

TOKYO (AP) - Japan's economy expanded for a ninth straight quarter from January to March, at a 2.4 per cent clip, but the pace of growth in the world's second-largest economy began to slow as companies cut investment amid jitters about a U.S. slowdown. Compared to the previous quarter, Japan's gross domestic product grew 0.6 per cent, the Cabinet Office said Thursday. If maintained for a full year, the economy would grow 2.4 per cent, just below the 2.6 per cent forecast by economists surveyed by Dow Jones Newswires.

While the increase marks the ninth straight quarter of growth, the pace slowed from a revised 5 per cent annualized growth rate in the October-December period. That was the fastest growth rate logged by Japan in three years.

Japanese Economy Minister Hiroko Ota said the figures still reflected a healthy economy and were further evidence Japan's economy "overall is recovering."

Japan has staged a recovery from more than a decade of economic stagnation, with help from strong exports and an increase in domestic consumption.

But stable growth is still vulnerable to a possible slowdown in the United States, the world's largest economy and a major market for Japanese exporters.

Just last month, the United States reported its worst economic growth in four years on concern that troubles in the U.S. housing market will trigger a recession. The economy crawled at a 1.3 per cent pace in the opening quarter of 2007.

Reflecting concern about a possible slowdown, business investment in Japan dropped 0.9 per cent in the January-March quarter, sapping strength from the overall economy. The decline marked a sharp reversal from a 2.3 per cent increase the previous quarter.

But economists cautioned that Japan's overall growth was still robust and seemed to be stabilizing. The current data also seems like a downturn because it comes after an unusually strong October-December quarter.

"It is a mistake to interpret it as poor figures being a sign of a new trend," said Richard Jerram, chief economist for Macquarie Securities in Tokyo. "Growth seems to be stabilizing at a solid healthy rate, without major fluctuations in either direction."

Lending a boost was consumer spending, which accounts for more than half the economy. It climbed 0.9 per cent from the previous quarter, but the pace of expansion slowed too, from 1.1 per cent in October-December.

Exports also helped offset slowdowns in business investment, shooting up 3.3 per cent. They rose a meager 0.8 per cent in the previous quarter.

The data comes ahead of an interest rate decision later Thursday by the Bank of Japan, which has said it will gradually increase its key rate from the current level of 0.5 per cent, the lowest in the industrialized world.

Economists said Thursday's GDP figures were unlikely to derail those plans.

© The Canadian Press, 2007