— Pickup in Consumption Pausing on Resumed Covid Restrictions
— Business Investment Moving Upward as Seen in Q4 GDP Rebound
By Max Sato
(MaceNews) – Japan’s government Thursday downgraded its economic overview for the first time in five months, noting the recent spike in coronavirus cases sparked by the Omicron variant is hurting consumer spending, only two months after it made the first upgrade in 17 months, according to its monthly report released by the Cabinet Office.
The government said the economy is “showing signs of a pickup, although some weakness is observed.” It also said “severe conditions caused by the pandemic remain,” compared to its preview view that those conditions were “easing gradually.”
As for overseas economies, the government largely maintained its overall assessment, saying they are “picking up while the effects of coronavirus infections are easing.” Last month, it said they were “picking up while server conditions caused by coronavirus infections are easing.”
On the near-term outlook, the government remains cautiously optimistic about recovery, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies.” It vowed to “take all possible measures” against Covid while allowing the economic and social activities to continue.
It also warned about “higher downside risks” posed by the spread of the pandemic, the drag from supply-side constraints and rising materials prices.
Key points from the monthly report:
The government revised down its assessment on private consumption, which accounts for about 55% of the gross domestic product, for the first time in five months, saying its pickup “appears to be pausing.” Previously it said consumption was “picking up.”
Consumption has been sluggish since the second half of January, hovering at the bottom of a range seen in the 2017-2019 average year patterns, according to the Cabinet Office.
The government resumed restrictions on targeted areas in many of the 47 prefectures in late January, urging restaurants and bars to close by 8 p.m. and to not serve alcohol at all times while limiting the capacity at sporting and entertainment events.
The Omicron scare hurt business and consumer sentiment, prompting people to reduce visits to retail stores, leisure facilities and restaurants and cancel trips. Consumer spending on goods remains solid but expenditures on services have been weak.
The government maintained its assessment of exports as being “largely flat” after downgrading it November. Shipments of vehicles and parts are improving while those of capital and telecommunications goods are slowing.
In its monthly report, the government repeated that production is “showing signs of a pickup” after revising it up for the first time in 14 months in January. Easing supply bottlenecks has supported the auto sector while demand for production equipment and electronic devices is expected to stay on an uptrend.
On the upside, the official assessment on capital investment was upgraded to “showing signs of a pickup” from “the pickup is pausing.” It was the first upward revision in 10 months.
In the October-December quarter GDP data released Tuesday, business investment in equipment rose 0.4% on quarter after a 2.4% slump in the previous quarter. Leading indicators of investment in machines and buildings are picking up while capex in software tied to the digitization of operations has been increasing gradually since October.
The government noted that producer prices are showing moderate gains after a temporary slowdown in tandem with softer energy and commodities markets.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
* The pickup in private consumption “appears to be pausing” vs. consumption is “picking up” (the first downgrade in five months; last upgraded in December 2021; last downgraded in September 2021).
* Business investment is “showing signs of a pickup” vs. its pickup is “pausing”
(the first upgrade in 10 months; last upgraded in April 2021; downgraded in December 2021).
* Housing construction is “weaker” vs. “largely flat” (the first downgrade in two months; upgraded in September 2021; downgraded in December 2021).
* Exports are “largely flat” (unchanged; upgraded in December 2020; downgraded in November 2021).
* Industrial production is “showing signs of a pickup” (unchanged; upgraded in January 2022; downgraded in November 2021).
* Corporate profits are “picking up, although some weaknesses remain among non-manufacturers” due to the impact of the pandemic (unchanged; upgraded in August 2021; downgraded in April 2020).
* Business sentiment is “showing signs of a pickup” (unchanged; upgraded in December 2021; downgraded in May 2021).
* Employment conditions are “picking up in some components such as job offers, while weakness remains due to the influence of the infectious disease” (unchanged; upgraded in December 2021; downgraded in May 2020).
* Consumer prices are “firm” (unchanged; last changed to “firm” from “flat” in August 2021; downgraded in March 2020).