–Economists Revise Down Forecasts to Show Slight Contraction in 1Q
By Max Sato
(MaceNews) – Japanese Prime Minister Fumio Kishida is likely to face bad news on the economic front after barely surviving voter frustration over public health restrictions imposed about two months ago aimed at fighting a surge in Covid infections caused by the Omicron variant.
Kishida announced Wednesday that the government is ending on March 21, as planned, its strict Covid rules short of a state of emergency for 18 prefectures including Tokyo which have been in place since late January, when 35 of the 47 prefectures were under restrictions.
The total number of new Covid-19 infections in Japan is gradually declining but the numbers are still rising or little changed in some areas, making the outlook uncertain.
In the face of surging costs for daily necessities and lingering global supply bottlenecks, economists have revised down their forecasts for the January-March economic performance, according to the monthly ESP Forecast Survey released Wednesday.
Q1 GDP Seen Down
On average, 36 economists polled by the Japan Center for Economic Research from March 4 to March 11 forecast GDP would contract an annualized 0.24% in the first quarter, down from their projection of 1.70% growth made about a month ago and a 5.05% expansion forecast in early January.
Energy and commodities prices have surged amid concerns over the Ukraine war while economic sanctions on Moscow imposed by the US and its western allies as well as implications of Beijing’s possible involvement in Russia’s war efforts are generating higher uncertainty over global growth.
Japan’s economy has been fluctuating widely, starting 2021 with a 2.2% annualized drop in January-March (in a Covid state of emergency), followed by a 2.4% rise in April-June, a 2.8% slump in July-September (due to the Delta-led Covid spike) and a 4.6% rebound in October-December.
The preliminary Q1 GDP is due on May 15 and revised data on June 8, weeks before Upper House elections, expected to be held sometime in July. Even though the drag from the pandemic may be beyond Kishida’s control, poor economic performance figures would not look good on his record going into the second general elections since he took office on Oct. 8 last year.
In Lower House elections on Oct. 31, Kishida led his ruling Liberal Democratic Party to maintain a comfortable majority despite losing seats as opposition parties remained largely fragmented.
Flat Approval Ratings
Five months ago, Kishida’s government made a modest start with its approval ratings lower than when Yoshihide Suga took over from Shinzo Abe in September 2020, and public support seems to remain lukewarm.
The latest opinion poll conducted from March 11 to 13 by public broadcaster NHK showed the public approval rating was 53% this month, down from 54% in February and 57% in January as Covid restrictions were extended, but holding above 49% seen in October last year.
In a Feb. 19 survey by the Mainichi Shimbun newspaper, the approval rating for the Kishida cabinet slipped to 45% from 52% in its previous poll on Jan. 22, while the disapproval rating rose to 46% from 36%. Amid the sixth wave of pandemic, 27% said of the respondents said they supported the government’s anti-Covid measures including public health restrictions and vaccination efforts, down from 31% previously, and 51% replied they didn’t support them, up from 39%.
Consumption’s Soft Start to Q1
In an early indication of a soft start to the current quarter, the BOJ’s supply-side Consumption Activity Index fell 3.0% on the month in January after slipping 0.3% in December and rising 1.8% in November. Compared to a 4.5% rebound in October-December, the index dipped 2.6% in January.
Retail sales posted the fourth straight year-on-year rise in January, led by higher fuel prices and solid department store sales, but that’s because resumed restrictions on economic activity that were expanded to many parts of the country in late January were short of a state of emergency issued a year earlier.
The 1.6% year-on-year rise was led by sales of fuels (up 22.8%) but automobile sales remained sluggish (down 15.4%) amid supply constraints. On the month, retail sales slipped 1.9% on a seasonally adjusted basis in January for the second straight drop.
The Kishida government is trying to keep the average price of regular gasoline from rising further by providing subsidies to oil refineries to help them cap wholesale price hikes but there is no guarantee that gas station operators won’t pass other cost increases on to consumers.
On the demand side, household spending slipped back on the month in January, hit by the drag from the Omicron-led spike in Covid cases, but posted the first year-on-year rise in six months as restrictions on economic activity issued in January were less strict than those imposed in early 2021 under a state of emergency.
Real average spending by households with two or more people surged 6.9% on the year in January in reaction to a 6.0% plunge seen a year earlier. On the month, spending dipped a seasonally adjusted 1.2% for the first drop in two months after rising 0.2% in December.
Japan Faces Both Reopening Demand, Supply Constraints
The government’s latest assessments are that exports are “largely flat,” and production is “showing signs of a pickup.”
Exports rose 19.1% in February for the 12th straight year-on-year rise, led by reopening demand for iron and steel, mineral fuels, and automobiles. The pace of increase picked up from a slower 9.6% rise in January, which was due to pre-lunar new year irregular shipments to Asia.
On a bright note, the Bank of Japan’s real export index rebounded 3.8% on the month in February, marking the first rise in three months after falling a revised 1.7% in January, dropping 1.1% in December, and rising 9.1% in November.
Japan’s industrial production posted the second straight drop in January, slipping a seasonally adjusted 1.3% after a 1.0% drop in December and a record 7.0% rise in November, as a spike in Omicron-led coronavirus cases caused some auto factories to suspend operations and supply shortages lingered.
Economists expect a modest rise in production in February similar to the government’s conservative estimate of a 0.7% rebound.