— Japan Sees Overseas Economies Picking Up; Upgrades Britain, Others
By Max Sato
(MaceNews) – Japan’s government Wednesday downgraded its view on the domestic economy for the first time in three months, saying the weakness in some spots is more pronounced while the economy stays on course toward a recovery from pandemic-caused slump, according to its monthly report released by the Cabinet Office.
The government said “signs of a pickup remain in place, although weakness is growing in some areas,” a slight downward revision from the previous assessment that the “signs of a pickup remain in place, although there is weakness in some areas.”
In response to a resurgence in coronavirus infections, the government has tightened restrictions on economic activity in a state of emergency for 10 prefectures, ranging from Tokyo in the east and Osaka in the west to Hokkaido in the north and Okinawa in the southwestern tip of Japan.
As part of the latest measures to stop the pandemic from spreading further, bars and restaurants in those areas must close by 8 p.m. and cannot serve alcohol at any time, but some places have been ignoring the official request, arguing fiscal support in exchange for compliance is not enough to stay afloat.
As for overseas economies, the government maintained its overall view that they are “picking up” amid severe conditions during the pandemic, after upgrading it last month.
It upgraded its views on Britain, South Korea, Taiwan and Indonesia this month, after revising up its assessment of the U.S. economy last month.
On the near-term outlook, the government repeated its recent statement, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies.”
But it also warned about a “higher downside risk” posed by the spread of coronavirus infections on domestic and global growth.
Key points from the monthly report:
As expected, the government downgraded its view on consumer spending for the first time in three months, noting it “has been in a weak tone, particularly in the service sector.”
By adding the latter part, the government emphasized the continued challenge for the tourism industry, with hotel occupancies still on a downtrend.
In contrast, spending on goods has been solid. For example, new car sales had rebounded close to the 2016-2018 monthly average by last October and have largely stayed at that level even during the fourth wave of the pandemic in Japan.
Japan’s economy marked the first quarter-on-quarter contraction in three quarters in January-March, hit by sluggish consumer spending and business investment during emergency restrictions on economic activity in major cities, Cabinet Office data released last week showed.
Real GDP shrank 1.3% on quarter, or an annualized 5.1%, in the first quarter of 2021, following +2.8% (annualized +11.6%) in October-December.
Private consumption, which accounts for about 55% of GDP, fell 1.4% on quarter in Q1. It was the first q/q drop in three quarters after rising 2.2% in Q4 but the pace of decline was slower than many economists had expected.
In the GDP data, business investment in equipment unexpectedly slumped by 1.4% on quarter, the first q/q drop in two quarters after rising 4.3% in Q4. Capex had shown a delayed pickup compared to other key segments of the economy.
The government left its assessment of business investment in the monthly economic report after upgrading it for the first time in two months in April, based on the April 1 release of the Bank of Japan’s quarterly Tankan business survey for March that showed companies generally planned higher capex spending for fiscal 2021 ending in March 2022.
However, it revised down its view on business sentiment for the first time in four months, saying it is “marking time in the process of picking up while tough conditions remain.” Previously it said sentiment was “showing signs of a pickup, although tough conditions remain in some areas.”
In a key government survey, optimism seen in February had faded by the end of April, when new coronavirus cases were surging. Last month, the government resumed its call for stricter social-distancing and stay-home practices in major commercial hubs, being forced to declare a “state of emergency” again for Tokyo and other prefectures.
The Economy Watchers Survey sentiment index for Japan’s current economic climate posted the first drop in three months, slumping 9.9 points to a three-month low of 39.1 in April on a seasonally adjusted basis, after rising 7.7 points to 49.0 in March.
Looking ahead, the Watchers outlook index, which shows sentiment about the situation two to three months ahead, marked the second straight monthly decline, slipping 8.1 points to 41.7 in April after sliding 1.5 points to 49.8 the previous month.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
* Private consumption “has been in a weak tone, particularly in the service sector” vs. “has been in a weak tone” (the first downgrade since February 2021; last upgraded in October 2020).
* Business investment is “picking up” (unchanged; upgraded in April 2021; downgraded in November 2020).
* Housing construction is “flat on the whole” (unchanged; upgraded in January 2021; downgraded in September 2019).
* Exports are showing a “continued increase at a slow pace” vs. “increasing at a slower pace” (wording changed but no change to assessment; upgraded in December 2020; downgraded in March 2021).
* Industrial production is “picking up” (unchanged; upgraded in November 2020; downgraded in April 2020).
* Corporate profits are “picking up as a whole while weakness is seen among non-manufacturers” due to the impact of COVID-19. (unchanged; upgraded in February 2021; downgraded in April 2020).
* Business sentiment is “marking time in the process of picking up while tough conditions remain” vs. “showing signs of a pickup, although tough conditions remain in some areas” (the first downgrade since January 2021; upgraded in March 2021).
* Employment conditions are improving with some soft spots (unchanged; upgraded in September 2020; downgraded in May 2020).
* Consumer prices are flat (unchanged; downgraded in March 2020).