The Japanese economy slowed slightly than previously reported in the first quarter, as private consumption remained strong in the face of the COVID-19 re-emergence and companies restructured their stocks, reducing their business costs. While the slowdown is not a good news for policymakers who hope the economy will return to growth this quarter, the ongoing supply disruption remains a threat to economic stability in April-June.
Updated domestic gross domestic product (GDP) released by the Cabinet Office on Wednesday showed the Japanese economy plummeting by 0.5% year-on-year in January-March. That was a slight decrease from the first reading of the 1.0% fall released last month. Quarterly-on-quarter, GDP lost 0.1%, exceeding expectations in the middle market by a decrease of 0.3%.Private consumption, which accounts for more than half of Japan’s GDP, grew by 0.1% in the first quarter from three months ago, revised from lower education due to a strong contribution from mobile phone payments and car sales.
The proliferation of manufacturing facilities also supported growth, which is a sign that car manufacturers and other manufacturers are looking for ways to cope with supply chain pressures, said Takumi Tsotaka, senior economist at Shinkin Central Bank Research Institute. That helped reduce the 0.7% decline in spending, but could show lower GDP growth in the current quarter as commodity growth recovers.
“Growth may be good, but that will not lead to recovery,” said Tsunes, warning of the negative impact of the second phase of China’s coronavirus closure. GDP developments followed Tuesday’s data showing housing spending sent a sharp drop to expectations in April, as the sharp depreciation of the yen and rising commodity prices pushed up sales costs.
Economists elected last month predicted strong annual growth of 4.5% for the quarter. Most respondents said they expected growth to be strong enough for the economy to return to pre-epidemic levels, even though the risk was growing. Stefan Angrick, Senior Economist at Moody’s Analytics, said the Japanese economy is not yet out of the woods yet.”The external disruption resulting from the Russian invasion of Ukraine and the closure of COVID-19 in China is a major drawback,” he wrote in the paper. “Supply snags have a significant impact on foreign trade, production and – depending on – investment spending.”
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