Japan’s economy shrank in the first quarter-but lower than expected | Business and Economic News

Japan’s economy contracted in the first quarter at a slower rate than originally reported due to smaller cuts in plant and equipment spending, but the coronavirus pandemic still dealt a huge blow to overall demand.

Another data showed that bank loan growth slowed sharply in May, while real wages recorded the largest monthly increase in more than a decade in April, indicating that the world’s third-largest economy is gradually overcoming last year’s pandemic.

Among the mixed indicators, there are some gratifying signs for policymakers who worry that Japan’s recovery will lag behind major economies that have launched a COVID-19 vaccine faster and are able to reopen sooner.

The revised gross domestic product (GDP) decline was mainly due to the smaller decline in public and capital expenditures, both of which fell less than originally expected, offsetting the slight decline in private consumption.

According to data released by the Cabinet Office on Tuesday, the economy’s annualized rate fell by 3.9% in January-March, which was not as good as the preliminary data of 5.1% annualized contraction, but still the first decline in three quarters.

This reading exceeded the 4.8% drop predicted by economists, which is equivalent to a 1% contraction of the actual ring compared to the previous quarter, and an initial drop of 1.3%.

“In general, capital expenditure and private consumption are still weak, which indicates weak domestic demand,” said Nan Wu, chief economist of the China Research Institute of Agriculture and Forestry. “The vaccine issue is the most important thing for (economic) recovery,” he said, adding that the vaccination rate needs to reach about 50% to boost the country’s economic recovery prospects.

As Japan’s latest virus emergency will last until mid-June, which is about a month before the Tokyo Olympics program begins, economists are watching whether there are any signs of additional weakness in the GDP report, indicating an increased risk of another contraction this quarter. They didn’t get that.

“When you look at the economic outlook, it’s not all bad things,” said Yoshiki Shinke, an economist at the First Life Research Institute. “The pace of vaccination is faster than expected, which increases the possibility of a strong rebound from the third quarter.”

Suppressed demand

Capital expenditures fell by 1.2% from the previous quarter, better than the initial drop of 1.4% and in line with the expected 1.2% loss. Government consumption fell by 1.1%, which was less than the initial decline of 1.8%.

Private consumption, which accounts for more than half of GDP, fell 1.5% from the previous three months, lower than the initial estimate of 1.4%.

However, Economy Minister Yasutoshi Nishimura said that as consumers return to the streets, spending may recover.

Nishimura told reporters after the data was released: “If the infection subsides, you will not be able to eat out or travel, so demand will be suppressed.”

COVID-19 surge

Net exports-or exports minus imports-reduced economic growth by 0.2 percentage points, while the blow to domestic demand reduced it by 0.8 percentage points, not as bad as the initial contribution of minus 1.1 percentage points.

The better-than-expected correction was made after a surge in household spending and exports in April, although the increase was largely exaggerated compared to the deep plunge driven by the pandemic last year.

Data released by the Bank of Japan on Tuesday showed that the total loan volume of the Bank of Japan in May increased by 2.9% year-on-year, a record slowdown from the 4.8% increase in April.

According to the government, inflation-adjusted wages are a barometer of household purchasing power, with a year-on-year increase of 2.1% in April.

The bank’s loan slowdown was mainly due to the fundamental effect of the surge driven by COVID-19 last year, while the fall in consumer prices and the rebound in overtime pay and part-time worker compensation helped raise wages.

As the cost of responding to the health crisis continues to increase, the government is facing political pressure to lower its already stretched fiscal targets this year.

Since the beginning of this year, Japan’s recovery has been suspended by intermittently declaring a state of emergency in an attempt to contain the virus outbreak.

The government of Japanese Prime Minister Yoshihide Suga has imposed strict restrictions on restaurants and bars to quell the recent epidemic, but let most other businesses operate as usual.

This method prevented the economy from collapsing like last year, but it also failed to eliminate the virus. At the same time, the high-speed vaccine campaign that has only started in recent weeks has allowed the crisis to continue, even if the number of cases is still far below the level in the United States or Europe.

Some analysts expect the Japanese economy to contract again this quarter — pushing it back into a technical recession — because the extension of emergency containment measures for the coronavirus in Tokyo and other major regions has hurt domestic demand.

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