Daily Management Review

Japan Rebounds From Recession As A Result Of The Post-COVID Consumer Recovery


Japan Rebounds From Recession As A Result Of The Post-COVID Consumer Recovery
Japan's economy has come out of recession and recorded an expansion faster than projected in the first quarter, as a post-COVID consumption bounce overcame global challenges, raising prospects for a long-term recovery.
However, signals of a downturn in growth in the United States, Europe, and China cloud the future for the export-reliant economy, raising doubts about how quickly the central bank can exit its enormous stimulus plan.
"Consumption will continue to underpin growth as removal of COVID curbs boost tourism and service spending," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
"But the economic recovery will be moderate as weak overseas demand will weigh on exports. It will be a tug-of-war between robust domestic demand and sluggish exports," he said.
The world's third-largest economy increased an annualised 1.6% in January-March, beating market expectations of a 0.7% increase and marking the first increase in three quarters.
The increase came after a 0.1% drop in the fourth quarter of last year, which was revised down from a 0.1% rise. The drop marked the second consecutive quarter of contraction, matching the definition of a technical recession.
Private consumption, which accounts for more than half of the GDP, increased 0.6% over the previous quarter as the country reopened following the pandemic, boosting service spending. This exceeded expectations of a 0.4% gain.
Capital spending also above expectations, rising 0.9% instead of falling 0.4%.
Japan's nominal GDP reached a record 570.1 trillion yen ($4.22 trillion), aided in part by rising prices, according to Economy Minister Shigeyuki Goto.
However, Goto advised caution in the face of growing concerns.
"We must meticulously pay heed to the global economy, and impacts from financial markets and rises in interest rates on real economy," he said.
Domestic demand was strong, offsetting a drop in exports of 4.2% in January-March, the first drop in six quarters.
External demand, or net exports, reduced GDP by 0.3 percentage point, emphasising the pressure on manufacturers from weakening overseas growth.
"Demand for goods isn't strong globally, so exports are weak. Industrial production is also soft, so we can't expect manufacturers to perform well ahead," said Toru Suehiro, an economist at Daiwa Securities.
Rising fuel and food prices, which have sent Japan's consumer inflation above the central bank's 2% target, may weigh on consumption if wage increases are not sustained, economists warn.
Wages decreased 2.3% year on year in January-March, more than the 1.8% loss in the previous quarter, reflecting the growing impact on households from rising living costs.