Japan GDP shrinks annualized 5.1% in Q1

Shibuya’s famous “scramble crossing” is relatively empty during Tokyo’s state of emergency on May 2. (Photo by Yo Inoue) 

MITSURU OBE, Nikkei Asia chief business news correspondent | Japan

TOKYO — Japan’s economy declined 1.3% in January-March from the preceding three-month period, or an annualized pace of decline of 5.1%, as resurgent COVID outbreaks snapped the run of consecutive growth after two quarters, the Cabinet Office said Tuesday. 

The result compares with an average forecast of a 1.2% contraction, or an annualized decline of 4.6%, in a survey of 37 economists by the Japan Center for Economic Research.

The setback was blamed on the government’s declaration of a second state of emergency, for a period between Jan. 8 and March 21, urging people to refrain from dining out at night and traveling across prefectural borders and also to work from home as much as possible. Such restrictions are believed to have put the brakes on personal spending on travel and dining.

Japan imposed a third state of emergency on April 25 as new COVID variants spread across the country, especially outside Tokyo, prompting some economists to predict another contraction in April-June. Economists on average expect the economy to rebound 0.5%, or an annualized pace of 1.8%, in April-June, according to a JCER survey.

Differences in pandemic situations and vaccine rollout paces led to divergent economic performances among regions in the first quarter. Japan has struggled to roll out vaccines due partly to a limited supply, but also due to a shortage of medical workers administering shots.

The U.S. expanded at an annualized pace of 6.4% in January-March from the previous quarter, while China grew at a pace of 2.4%, according to an estimate by the Cabinet Office. Meanwhile, the Eurozone economy contracted at a rate of 2.5%.

In Japan, the decline in the first quarter was partially offset by solid business activity as recoveries in the U.S. and China boosted demand for cars and electronics components and led to increases in business investment. 

“As long as the U.S. economy remains on a solid footing, the Japanese economy is likely to sustain its positive momentum,” said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute. But he added that differences in the pace of vaccine rollout will continue to have a “not insignificant” impact on the pace of recovery.

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