TOKYO Japan's economy is expected to have grown in January-March at its fastest pace in a year due to solid private consumption and a recovery in capital investment encouraged by Prime Minister Shinzo Abe's recipe of aggressive monetary and fiscal stimulus.
The median forecast was for a 0.7 percent rise in gross domestic product from the previous quarter, a Reuters poll of 24 analysts showed. That would translate into an annualized growth of 2.8 percent after a slight increase in October-December, trumping 2.5 percent U.S. growth in the same quarter.
The data, due on Thursday at 8:50 a.m. (Wednesday at 7.50 p.m. EDT), covers the first full quarter since Abe's return to power in late December.
It will be viewed as the first comprehensive report card on his plan to get the world's third-largest economy humming again, though one that will still mainly reflect the psychological effects of improved expectations behind rising consumer spending and capital expenditure.
Many analysts expect the pick up in domestic demand and export income that Abe is counting on to jolt the economy out of its two-decade long torpor will materialize in the next two quarters.
"Recovery in the real economy has been slow since it bottomed out around the end of last year, but there's a growing expectation for a fully-fledged recovery reflecting improvement in sentiment among companies and households," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Improvement in factory output has been modest so far and Cabinet Office figures are expected to show that a moderate rise in exports combined with higher imports costs caused by a weaker yen, resulting in no contribution from external demand to GDP.
Positive data should help Abe maintain his high poll ratings until the upper house election in July, which is his to lose with support at around 70 percent.
Abe has yet to deliver pro-growth reforms promised as part of his three-pronged strategy. But extra stimulus spending and the central bank's plan to double its government debt holdings have already lifted consumer and business confidence, sending the yen to 4-1/2 year lows and boosting share prices by 70 percent since November when Abe first presented his economic plans.
Even though it is far from clear whether "Abenomics" will bring back sustained solid growth that has eluded Japan for the past two decades, analysts expect the economy to maintain momentum in the current quarter, helped by public investment, a weak yen and recovery in the U.S.
Private consumption, which accounts for roughly 60 percent of the economy, is estimated to have risen 0.9 percent in the first quarter as a result of improved consumer sentiment helped in part by a buoyant stock market.
Underscoring the improvement, a Japanese gauge of consumer confidence picked up in April, a Cabinet Office survey showed on Wednesday.<ID:L3N0DV1EA>
In addition, nearly 83 percent of those surveyed expected prices to rise in the next 12 months, the highest number since October 2008, in a sign that the Bank of Japan's efforts to defeat deflation by changing consumer and business expectations were starting to bear fruit.
Household spending, however, could come under pressure from rising costs of energy and imported goods unless the summer round of bonuses boosts incomes enough to make up for a squeeze in disposable incomes.
The recent string of weak U.S. and Chinese data highlights another risk that could undercut Abe's plans and at best delay the much-awaited economic upturn.
Indeed, a gradual pick-up in global demand and factory output is expected to be behind a forecast 0.7 percent increase in capital spending in the first quarter, marking the first gain in five quarters. So far companies remain cautious on the outlook and hesitant to substantially boost investment.
Machinery orders figures, due on Friday at 8:50 a.m., are expected to show core orders rising 2.8 percent in March from the previous month, marking a second straight monthly increase.
Companies surveyed by the Cabinet Office will issue their projections for core orders in the second quarter, providing a clue for the strength of corporate capital spending ahead.
The trade ministry will also publish revised March industrial output data on Thursday at 1:30 p.m. (12.30 a.m. EDT). A preliminary reading showed a 0.2 percent increase, marking a fourth straight monthly rise, and economists will watch the revised data to see if the rising trend is confirmed.
($1 = 102.0350 Japanese yen)
(Editing by Tomasz Janowski and Shri Navaratnam)