aljazeera.com
Economy|Business and Economy
Japan’s economy shrank more than expected on surging virus
Decline was on the back of a hit in private consumption as a state of emergency to curb the virus kept people at home.
Japan's economy shrank more than expected in the first quarter as consumers stayed at home [File: Kim Kyung-Hoon/Reuters]
18 May 2021
Japan’s economy shrank more than expected in the first quarter as a slow vaccine rollout and new COVID-19 infections hit consumer spending, raising fears of the country heading towards a double-dip recession.
The economy shrank an annualised 5.1 percent in the first quarter, more than the forecast 4.6 percent contraction and following an 11.6 percent jump in the previous quarter, government data showed on Tuesday.
KEEP READING
Japan’s economy can handle a change of plan for Olympics: IMF
As Japan’s Suga meets Biden, China is the elephant in the room
Japan: Olympics could still be cancelled over COVID fears
Olympics on the line as Japan slides back into COVID emergency
The decline was mainly due to a 1.4 percent drop in private consumption as state of emergency curbs to combat the pandemic kept residents at home and hit spending for clothing and dining out.
Capital expenditure also fell unexpectedly and export growth slowed sharply, a sign the world’s third-largest economy is struggling for drivers to pull it out of the doldrums.
The dismal reading and extended state of emergency curbs have heightened the risk Japan may shrink again in the current quarter and slide back to recession, defined as two straight quarters of recession, some analysts say.
“Global chip shortages caused a marked slowdown in exports, putting a drag on capital spending as well,” said Yoshimasa Maruyama, the chief market economist at SMBC Nikko Securities. “Consumption will probably remain stagnant, raising risks of an economic contraction in the current quarter.”
As Prime Minister Yoshihide Suga’s administration struggles to speed up its vaccine rollout and contain virus cases using a predetermined approach that attempts to limit damage to the economy, it last week added three more prefectures to the latest state of emergency, putting about half of the economy under restrictions that are slightly tighter than the ones in winter. Restaurants and bars in many big cities are now being asked to refrain from serving alcohol in addition to closing early.
Failure to end the restrictions at the end of May, as planned, could also increase concerns over the staging of the Tokyo Olympics. Cancellation of the Games would deal another blow to the economy and raise the likelihood that Suga will be consigned to a long list of short-lived premiers. The country is set to hold national elections by early autumn.
Surprise drop
The bigger-than-expected contraction also reflected a surprise 1.4 percent drop in capital expenditure as companies scaled back spending on equipment for machinery and cars, confounding market expectations of a 1.1 percent increase.
While exports grew 2.3 percent thanks to a rebound in global demand for cars and electronics, the pace of increase slowed sharply from the previous quarter’s 11.7 percent gain, a worrying sign for an economy still reeling from weak domestic demand.
Domestic demand knocked 1.1 percent point off gross domestic product (GDP), while net exports shaved off 0.2 point, the data showed.
“That domestic demand is weak shows the adverse effects from the coronavirus haven’t been shaken off at all,” said Takeshi Minami, the chief economist at Norinchukin Research Institute.
Despite a substantial monetary and fiscal stimulus, Japan’s economy slumped a record 4.6 percent in the fiscal year that ended in March, the data showed.
Fiscal spend not enough
“There will undoubtedly be fiscal money poured on this problem to soften the blow, though after so much already, it is difficult to see this having more than a fairly marginal effect,” analysts at ING wrote in a research note, adding they expect the economy to shrink again in the current quarter. “And the Bank of Japan seems to be out of fresh policy stimulus ideas currently, so we don’t anticipate anything new from them apart from extending existing measures.”
Economy Minister Yasutoshi Nishimura blamed the weak GDP reading mainly on the curbs to combat the pandemic, adding the economy still had “potential” to recover.
“It’s true service spending will likely remain under pressure in April-June. But exports and output will benefit from a recovery in overseas growth,” he told reporters.
Japan’s economy expanded for two straight quarters after its worst post-war slump in April-June last year due to the initial hit from the pandemic.
SOURCE: NEWS AGENCIES
RELATED
Double-dip: Japan risks recession if new COVID emergency declared
Retailers could be hit hard if they are asked to close during Golden Week holidays which start next week.
22 Apr 2021
Japan issues third COVID emergency ahead of Olympics
State of emergency for Tokyo, Osaka, Kyoto and Hyogo declared from April 25, just three months before the Olympics.
23 Apr 2021
Japan to extend state of emergency by three weeks to May 31
Extension of state of emergency will leave a margin of less than two months before the July 23 start of Tokyo Olympics.
7 May 2021
Japan PM says ‘never put Olympics first’ amid games opposition
New poll shows nearly 60 percent of Japanese want the already delayed Tokyo Games cancelled.
10 May 2021
MORE FROM ECONOMY
Kremlin says summit will not stop US trying to ‘contain’ Russia
What will public school look like for US students this fall?
Swedish PM Lofven loses historic no-confidence vote
i24News to be first Israeli channel to open office in UAE
MOST READ
Iran’s President-elect Raisi addresses ties to mass executions
Israeli PM says Raisi win a ‘wake up’ call over Iran nuclear deal
Pakistan’s Khan fears ‘civil war’ if no peace deal in Afghanistan
Ethiopians vote in polls overshadowed by Tigray conflict
Advertisement
About
Connect
Our Channels
Our Network
Follow Al Jazeera English:
© 2021 Al Jazeera Media Network
You rely on Al Jazeera for truth and transparency
We understand that your online privacy is very important and consenting to our collection of some personal information takes great trust. We ask for this consent because it allows Al Jazeera to provide an experience that truly gives a voice to the voiceless.
You have the option to decline the cookies we automatically place on your browser but allowing Al Jazeera and our trusted partners to use cookies or similar technologies helps us improve our content and offerings to you. You can change your privacy preferences at any time by selecting ‘Cookie preferences’ at the bottom of your screen. To learn more, please view our Cookie Policy.
Dismiss
Cookie preferences