Japan's real gross domestic product grew 0.9 percent in the October-December period from the previous quarter for annualized growth of 3.7 percent growth — more than double the market forecast of 1.5 percent annualized growth. The nation's economy is expected to achieve the government projection of 1.3 percent real growth for fiscal 2007 even if it shrinks 1.6 percent in the January-March 2008 period.
The robust GDP growth is attributable to strong exports and corporate capital spending. But optimism is not warranted. In fact, Economic and Fiscal Policy Minister Hiroko Ota said that while the economy appears to be following a recovery path, there are "downward risks" because of trends in the U.S. economy.
In the October-December period, corporate capital spending and exports both expanded by 2.9 percent, but consumer spending increased only 0.2 percent. Although capital investment was strong in export-related industries, unstable financial and stock markets in the United States under the pressure from the subprime housing loan crisis are affecting the real economy. Thus the U.S. economy is likely to slow down, dampening Japan's export-oriented industries.
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