Japan’s economy contracts by 5.1pc in first quarter

Japan’s economy shrank by more than expected in the first quarter as the slow vaccine rollout and a resurgence in coronavirus infections hit consumption, reinforcing expectations the country will lag major trading partners in emerging from the pandemic, Reuters reports.

Extended state of emergency curbs are likely to keep any recovery in the current quarter modest, analysts say, adding to challenges for policymakers seeking to pull Japan out of the doldrums.

“With the medical situation still worsening and the vaccine rollout too slow, it will take until the end of the year for output to return to pre-virus levels,” said Marcel Thieliant, senior Japan economist at Capital Economics.

The economy shrank by an annualized 5.1 percent in the first quarter, more than a median market forecast for a 4.6 percent contraction and following an 11.6 percent jump in the previous quarter, government data showed on Tuesday.

The decline was mainly due to a 1.4 percent drop in private consumption as state of emergency curbs to combat the pandemic hit spending for clothing and dine-outs, the data showed.

But the bigger-than-expected contraction also reflected a surprise 1.4 percent drop in capital expenditure, which confounded market expectations for a 1.1 percent increase as companies scaled back spending on equipment for machinery and cars.

While exports grew by 2.3 percent thanks to a rebound in global demand

for cars and electronics, the pace of increase slowed sharply from the previous quarter’s 11.7 percent gain in a worrying sign for an economy still reeling from weak domestic demand.

Domestic demand knocked 1.1 percent point off gross domestic product (GDP), while net exports shaved off 0.2 point, the data showed.

Japan’s economy expanded for two straight quarters after its worst postwar slump in April-June last year due to the initial hit from the pandemic.-Photo: Kyodo

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