Japan's economy contracted in the first quarter as consumers and businesses cut spending, highlighting the fragility of economic recovery. The Cabinet Office said on Thursday that the gross domestic product (GDP) for the first quarter fell 2% at a quarter-on-quarter discount rate. Economists had predicted a 1.2% contraction. Private consumption and capital expenditure both declined, and net exports also dragged down economic growth. These data reflect the adverse effects of the New Year's Day earthquake in northwestern Tokyo and the suspension of automobile production and sales after the Toyota Motor subsidiary Daihatsu Motor certification scandal broke out. Other factors impeding growth include a steady decline in household spending. There have also been positive developments. Annual wage negotiations between the company and the trade union in the first quarter achieved the largest salary increase in 30 years. The Bank of Japan decided in March to raise interest rates for the first time in 17 years. One factor is that the prospects for wage growth will eventually boost consumption.