Japan’s economy shrank more than expected in the first quarter as a slow vaccine rollout and new COVID-19 infections hit spending on items such as dining out and clothes, raising concerns the country would lag others emerging from the pandemic.
Capital expenditure also fell unexpectedly and export growth slowed sharply, a sign that the world’s third-largest economy is struggling for drivers to pull it out of the doldrums.
The reading and extended state-of-emergency curbs have heightened the risk that Japan might shrink again in this quarter and slide back into a recession, defined as two consecutive quarters of recession, some analysts say.
Photo: EPA-EFE
“Global chip shortages caused a marked slowdown in exports, putting a drag on capital spending as well,” SMBC Nikko Securities Inc chief market economist Yoshimasa Maruyama said. “Consumption will probably remain stagnant, raising risks of an economic contraction in the current quarter.”
The economy shrank an annualized 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 yesterday.
The decline was mainly due to a 1.4 percent drop in private consumption, as state-of-emergency curbs to combat the pandemic hit spending for clothing and dining out.
The bigger-than-expected contraction reflected a surprise 1.4 percent drop in capital expenditure, which confounded market expectations for a 1.1 percent increase as companies scaled back spending on equipment for machinery and vehicles.
While exports grew 2.3 percent thanks to a rebound in global demand for vehicles 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 percentage points off of its GDP, while net exports shaved off 0.2 percentage points, the data showed.
Despite massive monetary and fiscal stimulus, Japan’s economy slumped a record 4.6 percent in the fiscal year that ended in March, the data showed.
Japanese Minister of Economy, Trade and Industry Yasutoshi Nishimura blamed the weak GDP reading mainly on the curbs to combat the pandemic, adding that the economy still had “potential” to recover.
“It’s true that service spending will likely remain under pressure in April to June, but exports and output will benefit from a recovery in overseas growth,” he told reporters.
Japan’s economy expanded for two consecutive quarters after its worst post-war slump in the second quarter of last year, due to the initial hit from the pandemic.
The export-driven recovery came to a standstill as consumption took a hit from a spike in new virus strains that forced the government to reimpose curbs just 10 weeks before the Tokyo Olympic Games.
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