© Reuters. FILE PHOTO: People Wearing Protective Masks Look in Mirror at Tokyo Mall Amid Coronavirus Outbreak (COVID-19) in Tokyo, Japan, August 19, 2021. REUTERS / Athit Perawongmetha
TOKYO (Reuters) – Japan’s economy shrank slightly less than originally reported in the first quarter, as private consumption remained resilient in the face of a recurrence of COVID-19 and companies renewed their shares, offsetting declining business spending.
While the slower contraction is welcome news for policymakers hoping the economy will return to growth this quarter, persistent supply chain disruptions remain a risk to economic momentum in April-June.
Revised data on gross domestic product (GDP) released by the Cabinet Office on Wednesday show that the Japanese economy contracted by 0.5% year-on-year between January and March. That was a smaller drop than the preliminary reading of the 1.0% drop released last month.
On a quarterly basis, GDP lost 0.1%, exceeding average market expectations by a decline of 0.3%.
Private consumption, which accounts for more than half of Japan’s GDP, grew 0.1% in the first quarter from the previous three months, revised relative to one reading thanks to a higher contribution from mobile phone fees and car sales.
The increase in inventories has also supported growth, a sign that carmakers and other manufacturers are looking for ways to cope with supply chain pressures, said Takumi Tsunoda, a senior economist at the Shinkin Central Bank Research Institute.
This helped offset a 0.7% drop in capital spending, but could point to lower GDP growth in the current quarter as inventory growth cools.
“Growth is likely to come positively, but it is unlikely to lead to a broader sense of recovery,” Tsunoda said, warning of the negative impact of austerity measures over China’s coronavirus in the second quarter.
“Japan’s economy relies heavily on Asian supply chains, so the Chinese blockade will have a relatively large impact.”
Domestic demand as a whole contributed to the revised GDP figures by 0.3 percentage points, while net exports increased by 0.4 percentage points.
Japan’s current account surplus fell sharply in April as record imports outpaced exports, separate data showed on Wednesday, raising concerns about the country’s long-term purchasing power amid a weakening yen.
The increase in GDP followed data from Tuesday showing that household consumption fell more than expected in April as a sharp fall in the yen and rising commodity prices boosted retail spending.
Economists polled by Reuters last month forecast strong annual growth of 4.5% this quarter. Most respondents said they expect growth to be strong enough for the economy to recover to pre-pandemic levels, although risks are rising.
Stefan Angrick, a senior economist at Moody’s (NYSE 🙂 Analytics, said the Japanese economy has not yet come out of the woods.
“External disturbances resulting from the Russian invasion of Ukraine and the blockade in China due to COVID-19 represent significant resistance,” he wrote in a note. “Supply barriers are straining exports, production and – increasingly – investment spending.”