By Max Sato
(MaceNews) – With luck, Japan’s economy has recovered about half of lost output amid the global pandemic and its momentum is lingering into the current quarter, but it is likely to lose steam in the New Year and could contract again.
For an economy heavily dependent on China as a consumption and production center, the giant neighbour’s relatively quick comeback from the coronavirus-caused slump has helped its exports crawl back on a pickup track.
On the domestic front, fewer cases of COVID-19 infections have been reported, compared to other industrialized countries. It is customary in Japan to wear a face mask in public to prevent catching or spreading cold and flu viruses. People rarely shake hands or hug one another in social or business greetings.
“What is fortunate for Japan’s economy for this year is that there have been no major earthquakes or typhoons making landfall, which means there are no new disaster evacuation zones where clusters of cases would have spread,” said Sumitomo Mitsui DS Asset Management chief economist Akiyoshi Takumori.
“Also lucky for Japan is that extra hand-washing, gargling and more frequent mask-wearing to fend off COVID-19 has worked to prevent regular flus from spreading so far.”
To support the hard-hit tourism and entertainment industries, the government has been seeking to strike a balance between restricting economic activity and allowing businesses to reopen, without imposing a strict lockdown while shutting off most entries and reentries of non-Japanese citizens since early April.
This has resulted in occasional spikes in new cases but most households are trying to live COVID-19 lifestyles, limiting dining out and traveling voluntarily, although some are taking advance of the government-subsidized ‘Go To Travel’ campaign, which offers discounts on accommodations and transportation.
Japan’s economy for the July-September quarter surged 5.0% on quarter, or an annualized 21.4%, led by a rebound in net exports and consumer spending, but it only recovered just over a half of a record plunge in April-June amid the pandemic-triggered slowdown, Cabinet Office data released Monday showed.
While external demand and domestic consumer spending pushed up the Q3 growth, business investment in equipment remained lackluster.
Some momentum will linger into October-December as the sharp rebound in consumer spending in the previous quarter will provide a statistical boost to the start of the current quarter and the dampening base-year effects of the October 2019 sales tax hike have faded.
“There is a positive carryover from Q3 to Q4 in private consumption, for example, a 1.0 percentage point in household spending data and 1.4 percentage points in retail sales,” Takumori said. “Some major department store chains are reporting a slight year-over-year gain in October sales in reaction to the slump caused by the consumption tax hike (seen a year earlier), and the services sector appears to be firm, thanks to the effects of the ‘Go To’ campaign.”
New coronavirus cases are a cause for concern, but assuming their negative impact is emerging in late November, October-December GDP growth is likely to be solid, he predicted.
In addition to consumer spending, exports are expected to remain supported by recovering demand for Japanese automobiles and semiconductors and chip-making equipment while Q4 growth will be also propped up by continued public works spending as part of economic stimulus measures.
“However, we are skeptical about whether the current momentum will be maintained in the January-March quarter,” said Mitsubishi UFJ Research and Consulting economist Shinichiro Kobayashi. “In the worst-case scenario, Q1 GDP could post a quarter-on-quarter contraction, although that is not our main scenario at this point.”
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Contact this reporter: max7sato@gmail.com.
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