Japan's economy grew an annualized real 2.7 percent in the January-March quarter, much faster than previously reported, with an upward revision to spending by companies providing fresh evidence of a recovery in domestic demand, government data showed Thursday.

The world's third-largest economy was initially reported to have expanded 1.6 percent. With the October-December gross domestic product data also upgraded, it was confirmed that the economy had escaped a recession.

GDP, the total value of goods and services produced in a country, expanded 0.7 percent in January-March from the previous quarter, revised up from growth of 0.4 percent reported last month.

With the economy continuing to recover since the lifting of COVID-19 curbs, companies have been stepping up investments that had been postponed during the pandemic, while private consumption remains resilient despite rising prices for everyday goods.

Capital spending rose 1.4 percent, upgraded from 0.9 percent in the preliminary data, reflecting investments by companies to increase output, the Cabinet Office said.

Private consumption, which accounts for more than half of the economy, was revised slightly downward to growth of 0.5 percent from 0.6 percent. While pent-up demand remained strong, people spent less on dining out than initially thought.

"The GDP data provides evidence that the economic recovery was intact and the question is whether the momentum will be sustained. Recent data indicates growth is slowing in the current April-June quarter," said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting.

"Consumer spending appears to have slowed in recent months, partly because real income is falling while prices are rising. This is a worrying sign because there were hopes that the change in the legal classification of COVID-19 would give the economy a boost," Kobayashi added.

Japan in May downgraded the novel coronavirus to the same category as seasonal flu, meaning that people testing positive for COVID-19 are no longer asked to stay in hospital or quarantine.

Major companies have agreed to raise pay to keep pace with accelerating inflation, but the sustainability of wage growth is seen as critical to supporting domestic demand, a point made clear by Prime Minister Fumio Kishida, who is pushing for greater wealth redistribution, and the Bank of Japan.

The revised GDP data showed higher inventories than previously reported, a positive factor for growth because it signals companies have been making products.

A revival of inbound tourism since the easing of COVID-related border controls has seen spending by foreign visitors contribute to exports in the GDP data.

Overall exports, however, declined 4.2 percent in January to March, unchanged from the preliminary report, as shipments of cars and machinery fell.

Public investment was revised down to an increase of 1.5 percent from 2.4 percent.

Global growth is expected to slow as aggressive interest rate hikes in the United States and other advanced economies will curb demand and inflation.

Slack overseas demand bodes ill for export-reliant Japan, calling into question how much longer the recent recovery in domestic demand will continue.

The Organization for Economic Cooperation and Development, which expects the global economy to expand 2.7 percent this year, still below pre-pandemic levels, has warned of greater uncertainty as inflation could be more entrenched than expected.

Japan's economy is forecast to grow at a much slower pace of 1.3 percent.

In the January-March period, nominal GDP grew an annualized 8.3 percent, up from 7.1 percent.