Japan’s economy slumps more than expected as COVID-19 hits consumption

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Pedestrians sporting protecting masks, following the coronavirus illness (COVID-19) outbreak, make their means throughout commuting hour at a enterprise district in Tokyo, Japan, January 7, 2021. REUTERS

TOKYO — Japan’s economy shrank more than expected within the first quarter as the gradual vaccine rollout and a resurgence in COVID-19 infections hit consumption, reinforcing expectations the nation will lag main buying and selling companions in rising from the pandemic.

Extended state of emergency curbs are prone to maintain any restoration within the present quarter modest, analysts say, including to challenges for policymakers looking for to drag Japan out of the doldrums.

“With the medical situation still worsening and the vaccine rollout too slow, it will take until the end of the year for output to return to pre-virus levels,” stated Marcel Thieliant, senior Japan economist at Capital Economics.

The world’s third-largest economy shrank an annualized 5.1% within the first quarter, more than a median market forecast for a 4.6% contraction and following an 11.6% soar within the earlier quarter, authorities information confirmed on Tuesday.

The decline was primarily attributable to a 1.4% drop in non-public consumption as state of emergency curbs to fight the pandemic hit spending for clothes and dine-outs, the info confirmed.

But the bigger-than-expected contraction additionally mirrored a shock 1.4% drop in capital expenditure, which confounded market expectations for a 1.1% enhance as corporations scaled again spending on gear for equipment and vehicles.

While exports grew 2.3% because of a rebound in international demand for vehicles and electronics, the tempo of enhance slowed sharply from the earlier quarter’s 11.7% achieve in a worrying signal for an economy nonetheless reeling from weak home demand.

Domestic demand knocked 1.1% level off gross home product (GDP), whereas web exports shaved off 0.2 level, the info confirmed.

“That domestic demand is weak shows the adverse effects from the coronavirus haven’t been shaken off at all,” stated Takeshi Minami, chief economist at Norinchukin Research Institute.

“There’s no service and inbound spending currently, so it can’t be helped that there will be a reliance on foreign demand.”

Japan’s economy expanded for 2 straight quarters after its worst postwar stoop in April-June final 12 months as a result of preliminary hit from the pandemic.

The export-driven restoration got here to a standstill as consumption took successful from a spike in new virus strains that pressured the federal government to re-impose curbs simply 10 weeks earlier than the Tokyo Olympic Games.



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