JAPAN’S economic growth unexpectedly accelerated in the January-March period, driven by net contributions from exports and defying forecasts for a contraction in the world’s third-largest economy.

However, the surprise expansion was mostly caused by imports declining faster than exports, likely reflecting weak domestic demand, a point of concern for policymakers with a planned sales tax hike scheduled to take effect in October.

Underscoring this challenge were private consumption and capital expenditure readings, which both fell in the first quarter, while exports suffered the biggest fall since 2015.

Japan’s economy grew at an annualized 2.1 percent in the first quarter, gross domestic product (GDP) data showed yesterday, beating market expectations for a 0.2 percent contraction.

The soft patches behind the headline GDP number could keep alive speculation that Prime Minister Shinzo Abe may postpone a twice-delayed increase in the sales tax in October.

“All of the most important components of GDP are negative,” said Hiroaki Muto, chief economist at Tokai Tokyo Research Center.

“The economy has already peaked out, so we are likely to have a mild recession,” he said. “No one would object to delaying the sales tax hike.”

The headline GDP expansion was caused largely by a 4.6 percent slump in imports, the biggest drop in a decade and more than a 2.4 percent fall in exports.

As imports fell more than exports, net exports — or shipments minus imports — added 0.4 percentage point to GDP growth, the data showed. (SD-Agencies)