TOKYO, June 8 (Reuters) – Japan’s economy grew more than initially thought in January-March, revised data showed on Thursday, as a post-pandemic pickup in domestic spending and company restocking helped offset the hit to exports from slowing global demand.

With inflation running at a four-decade high, further growth in the world’s third-largest economy will depend on sustained wage hikes, which the Bank of Japan and the government regard as core policy objectives.

Japan’s gross domestic product (GDP) expanded an annualised 2.7% in January-March, much higher than a preliminary estimate of a 1.6% growth and economists’ median forecast for a 1.9% rise.

“Despite the global economic slowdown, the Japanese economy remains resilient – ample private consumption will continue to support the growth,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

However, with much of the revised January-March growth driven by inventories, rather than final demand, Tsunoda warned the recovery so far may not be as robust as headline figures suggest.

The figures also revised out a technical recession reported for the second half of last year, defined as two consecutive quarters of contraction. The revised data showed GDP rose 0.4% in October-December, following a 1.5% contraction in July-September.

The January-March expansion translates to a 0.7% quarter-on-quarter rise, data released by the Cabinet Office showed, against a preliminary reading of 0.4% and economists’ forecast for a 0.5% increase.

Companies’ work-in-progress inventories, particularly among automakers and semiconductor equipment firms, and capital expenditure rose faster than previously reported, contributing to the upward GDP revision, a government official told a press briefing.

Capital spending rose 1.4%, upgraded from 0.9% and roughly in line with Ministry of Finance data last week that showed manufacturers’ business spending grew at the fastest rate since 2015.

Private consumption, which makes up more than half of Japan’s GDP, grew 0.5%, revised down slightly from an initial estimate of a 0.6% increase.

While consumption growth was downgraded on fresh services-sector statistics, “the broader picture is unchanged that spending on services such as restaurants and hotels contributed positively” to the January-March GDP expansion, the official added.

Domestic demand as a whole contributed 1.0 percentage point to the revised first-quarter GDP growth, more than initially estimated.

Meanwhile, net exports detracted 0.3 of a percentage point, in line with preliminary estimates. Although separate data on Thursday showed Japan logged current account surplus in April for a third straight month, export growth was at a two-year low.

Looking ahead, improved car exports due to eased supply bottlenecks will help offset the hit from weaker shipments of other items, such as electronic parts, Shinkin’s Tsunoda said.

Reporting by Kantaro Komiya; Graphics by Pasit Kongkunakornkul; Editing by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.