By Max Sato
(MaceNews) – Japan’s economy marked the first quarter-on-quarter contraction in three quarters in January-March, as largely expected, hit by sluggish consumer spending and business investment during emergency restrictions on economic activity in major cities, Cabinet Office data released Monday showed.
Real GDP fell 1.3% on quarter, or an annualized 5.1%, in the first quarter of 2021, following +2.8% (annualized +11.6%) in October-December. In July-September 2020, GDP surged 5.3%, or an annualized +22.9%, the fastest growth under the current GDP formula dating to 1994.
Q1 GDP came in slightly weaker than the median economist forecast of -1.2%, or an annualized pace of -4.6%.
GDP Remains Below Year-Earlier Levels
Japan’s GDP dipped 1.9% from a year earlier in January-March, posting the sixth straight quarter of year-on-year decline after falling 1.1% in October-December. The recent pace of contraction decelerated from -5.6% in July-September and -10.1% in April-June of 2020, when the first wave of coronavirus infections caused a plunge in demand around the world.
At the height of the pandemic slump in the April-June quarter of 2020, Japan’s GDP marked the deepest contraction on record, down 8.1% q/q, or an annualized 28.6% (both figures revised up in the latest data).
In fiscal 2020 that ended in March, GDP contracted 4.6% on year after sliding 0.5% in fiscal 2019 and growing 0.2% in fiscal 2018. It was the worst decline on record.
In Q1, domestic demand pushed down total domestic output by 1.1 percentage points after raising Q4 GDP by 1.8 percentage points.
Net exports — exports minus imports — trimmed 0.2 percentage point off Q1 GDP after boosting Q4 GDP by 1.0 percentage point.
Exports of goods and services rose 2.3% on quarter in January-March after surging 11.7% in October-December. Imports gained 4.0% after rising 4.8% in the previous quarter.
Consumption, Capex Down
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. It made a negative contribution of 0.7 percentage point to the first-quarter GDP.
Business investment unexpectedly slumped by 1.4% on quarter in Q1, 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. It made a negative 0.2 percentage point contribution to total output.
Private-sector inventories made a positive contribution of a 0.3 percentage point to Q1 GDP, the first q/q rise in three quarters (-0.5 point in Q4).
Public investment also turned weaker, falling 1.1% on quarter in Q1 for the first q/q drop in seven quarters, after rising 1.1% in Q4. It made a negative 0.1 contribution to overall output in Q1.
Q2 GDP Forecast To Show Only Slight Rebound
The economic outlook remains uncertain in light of a resurgence of new coronavirus cases and the slow vaccine rollout in Japan.
Economists on average have revised down their forecasts and they now expect the domestic economy to rebound just 1.84% at an annualized rate in April-June, instead of 5.63% projected last month, according to the latest monthly ESP Survey of 37 forecasters by the Japan Center for Economic Research released last week.
Household spending on some services picked up slightly in March as the government gradually lifted restrictions on economic activity amid fears that doing so would trigger a resurgence of coronavirus cases.
In early March, the government extended its request for restrictions in Tokyo and three surrounding prefectures, while lifting emergency measures for six other jurisdictions.
In April, 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 as well as western prefectures of Osaka, Kyoto and Hyogo, only a month after it lifted such measures for Tokyo and its neighbouring jurisdictions. The latest action prompted prefectural governors to ask shops, restaurants, bars and event venues to close during the emergency period.
In the near term, spending on traveling and eating out is likely to be limited as the state of emergency is in effect through the end of May.