Japan's economy shrinks again

style="float: right; margin-bottom: 10px; font-weight: 600;"Tue 18th May, 2021

The Japanese economy contracted by 1.3 percent at the beginning of the year as a result of the third wave of coronavirus. After two quarters of strong growth, during which the country emerged from the covid recession, a renewed flare-up of new infections threatens to further delay the economic recovery.

The pandemic proved to be the greatest burden on the economy in the period from January to March. After the third wave of coronaviruses swelled in Japan at the turn of the year, the government imposed a second virus emergency on the country's metropolises at the beginning of January, which lasted in the Tokyo metropolitan area until almost the end of March. The population was called upon to work largely from home and to avoid public areas. Restaurants and bars were forced to close early in the evening. The restrictions and uncertainty caused private consumption to shrink 1.4 percent from the previous quarter, according to preliminary data from statisticians.

Companies were also reluctant to invest, contracting by 1.4 percent. The only growth factor was exports, which were up 2.3 percent on the previous quarter. However, strong growth in imports meant that foreign trade slowed growth overall.

The outlook for further development is modest. The country is currently experiencing a fourth wave of coronavirus. Since late April, the third virus emergency has been in effect for the Tokyo and Osaka metropolitan areas, and has now been extended to nine prefectures. Calls to introduce the restrictions nationwide are growing louder.

The number of severely ill covid patients is currently reaching record levels. The vaccination campaign against the coronavirus is proceeding sluggishly. Only a few percent of the population has received a vaccination so far. At the current pace, it will be difficult for the government to vaccinate Japanese aged 65 and older by the end of July as promised.

According to economists, all this will further weaken consumption. On the other hand, exports and production should benefit from the recovering global economy. The majority of economists in surveys expect meager growth of 0.5 percent this quarter. Marcel Thieliant of Capital Economics expected stagnation, while stressing that the risks to growth are pointing downward.

Last year, the economy shrank by 4.7 percent. Like Germany, Japan was one of the countries that had not coped particularly well with the pandemic, but not particularly badly either. Japan was additionally weakened because an increase in consumption tax had already plunged the country into recession before the pandemic. The contraction in the first quarter of this year, at minus 1.3 percent, was less bad than in Germany, at minus 1.7 percent.

Image by Masashi Wakui


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