The 1.6 percent expansion last year marked the first annual figures under Abe and his programme, dubbed Abenomics, after the conservative swept national elections on a ticket to restore Japan’s fading status as an economic superpower.
Tokyo championed the figures published Monday as proof that the drive to stoke growth and conquer years of deflation was taking hold.
“Domestic demand remains in a good shape,” economy minister Akira Amari told reporters Monday, adding that the “economic trend is pointing upward, led by private-sector demand”.
Since Abe swept to office in late 2012, the yen lost about a quarter of its value against the dollar – giving a boost to Japanese exporters – while the Nikkei stock index soared 57 percent in 2013 to post its best performance in over four decades.
But critics fear that a tax rise in April – seen as crucial for chopping Japan’s eye-watering national debt – would curtail the recovery. Rates are set to increase to 8.0 percent from 5.0 percent, Japan’s first sales tax rise since the late nineties.
Abe has been calling on firms to hike wages as consumers face paying more for everyday goods, while Tokyo launches a special $50 billion stimulus package to prop up the post-tax rise economy.
Spring labour negotiations would likely generate widespread wage hikes, Abe said Monday, although there has so far been little evidence of big pay or capital spending rises, seen as key to concrete growth, after years of lacklustre consumer demand.
“We expect that a trend of rising salaries will expand more than last year,” Abe told parliament.
Despite Tokyo’s upbeat take on the annual growth figures, they only modestly beat Japan’s expansion in 2012 before Abe came to power, and weakening second half data was likely to stoke more concerns about the pace of recovery.
Consumer and corporate spending in the latter half of the year failed to take off, pointing to a still-cautious mood among households and in the country’s boardrooms.
“Weak Q4 GDP figures show that the surge in spending ahead of the consumption tax hike has yet to come,” Capital Economics said.
“Last-minute spending to avoid the higher sales tax will likely lead to an acceleration in demand in (the first quarter), followed by a slump in the second quarter.”
Japan’s growth led G7 nations in the first half of the year, but the economy expanded just 0.3 percent in the October-December quarter, less than the 0.7 percent expansion economists had expected, according Nikkei business daily survey.
Lacklustre exports were largely to blame for the slowing growth, said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
“The lower yen has boosted stock prices, which propped up consumption,” he said. “But export growth has not been strong.”
The strength of overseas economies, particularly the United States, will be a key factor for Japan’s economy this year, Shinke added.
“It would reasonable to expect further growth as overseas economies are expected to fare better this year,” he said.
But the tax rise looms as a major threat to Abe’s efforts and has stoked speculation that the Bank of Japan (BoJ) would be forced to expand its already unprecedented monetary easing drive later this year to counter a slowdown.
The programme launched by the BoJ, which kicks off a two-day meeting on Monday, is a cornerstone of Abe’s policy, meshing big government spending and central bank easing.
It also calls for deeper reforms, most yet-to-be-seen, including free-trade deals, more flexible labour markets and bringing more women into the workforce.
The Japanese economy grew 1.4 percent in 2012 and contracted 0.5 percent in 2011 as the country was hammered by a quake-tsunami disaster and subsequent nuclear crisis.