TOKYO: Japan’s economy shrank at a slower-than-initially reported pace in the first quarter, on smaller cuts to plant and equipment spending, but the coronavirus pandemic still dealt a huge blow to overall demand.
Separate data showed growth in bank lending slowed sharply in May, while real wages posted the biggest monthly jump in more than a decade in April, in signs that the world’s third-largest economy was gradually overcoming last year’s pandemic hit.
Among the mixed indicators are some reassuring signs for policymakers, who are worried Japan’s recovery will lag major economies that have rolled out Covid-19 vaccines much quicker and are able to reopen faster.
The revised gross domestic product (GDP) decline was mainly due to a smaller fall in public and capital spending, which both eased less than initially thought, offsetting a slightly larger fall in private consumption.
The economy retreated an annualised 3.9% in January-March, not as bad as the preliminary reading of an annualised 5.1% contraction, but still posting the first fall in three quarters, cabinet office data showed yesterday.
The reading, which beat economists’ forecast for a 4.8% decline, equals a real quarter-on-quarter contraction of 1.0% from the prior quarter, versus a preliminary 1.3% drop.
“Overall, capital spending and private consumption remained weak, which showed weakness in domestic demand, ” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“The vaccine issue is the most important thing for the (economic) recovery, ” he said, adding that the vaccination rate would need to come to about 50% to boost the country’s economic recovery prospects.
Capital spending shrank 1.2% from the prior quarter, better than a preliminary 1.4% decrease, and matching the median forecast for a 1.2% loss. Government consumption fell 1.1%, a smaller drop than a preliminary 1.8% decline.
Private consumption, which makes up more than half of gross domestic product, dropped 1.5% from the previous three months, worse than the initial estimate of an 1.4% drop.However, Economy Minister Yasutoshi Nishimura said spending could recover as consumers return to the streets.
“If infections subside, there’ll be pent-up demand from not having been able to go eating out or travelling, ” Nishimura told reporters after the release of the data.
Net exports - or exports minus imports - subtracted 0.2 percentage point from growth, while the hit to domestic demand pulled it down by 0.8 percentage point, not as bad as a preliminary contribution of minus 1.1 percentage point. — Reuters