Japan prolongs economic recovery as exports, capex gets a boost
April 20, 2021

Japan prolongs economic recovery as exports, capex gets a boost

TOKYO (JAPAN) – Japan’s economy expansion surpassed expectations in the fourth quarter, taking a step forward towards the recovery from its worst postwar recession. This was brought forth by a rebound in overseas demand, which boosted exports and capital spending.

However, the recovery was slow when compared with the third quarter’s brisk pace, and the new state of emergency curbs has hampered the outlook.

Takumi Tsunoda, senior economist at Shinkin Central Bank Research, said, “Conditions are such that Japan will not be able to avoid negative growth in the first quarter.”

“There is a high possibility that there will be a repeating cycle of coronavirus infections spreading and being contained this year, which means that consumption is not likely to recover at the expected pace.”

The world’s third-largest economy grew an annualised 12.7% in October-December, as shown by government data on Monday, crossing a median market forecast for a 9.5% gain.

It was slower than the revised 22.7% surge in the previous quarter.

Japan’s economy contracted 4.8%, the first annual fall since 2009, for the full year hit by coronavirus.

But Japan’s October-December performance was stronger than US growth of 4% and a 2.8% slump in the euro zone. Analysts say that with two straight quarters of solid growth, Japan’s economy is likely to have recouped 90% of pandemic-induced losses.

“Japan’s recovery proceeded at a much faster pace than initially expected,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“There’s still some distance toward a full normalisation, but economic activity is recovering toward pre-pandemic levels.”

Japan’s stronger-than-expected GDP data comes at a time when signs of the pandemic’s impact on other Asian economies toward the end of last year was not as severe as their fears were.

Figures released on Monday showed Thailand’s GDP came down to less than expected in the fourth quarter while the contraction in Singapore’s economy was smaller than initial estimates.

A global rebound in manufacturing gave Japan’s exports and capital expenditure a much-needed boost on strong shipments to a rapidly recovering Chinese economy.

External demand, or exports minus imports, added 1.0% point to fourth-quarter GDP growth, because of a 11.1% surge in exports.

Capital expenditure also grew 4.5%, which makes it the first increase in three quarters, as companies continued with spending that had been put off last year because of the pandemic.

Private consumption, which makes up more than half of the economy, increased to 2.2%, slowing from the 5.1% increase in the previous quarter but exceeding market forecasts for a 1.8% gain.

The outlook, however, remains highly vague as Japan falls behind western countries in rolling out vaccines.

Analysts expect the economy to contract in the current quarter, as the renewed state of emergency curbs rolled out in January has had a heavy toll on retailers and is set to last until early March.

Yusuke Shimoda, senior economist at Japan Research Institute, said, “If state of emergency measures are lifted in March, Japan’s economy will probably rebound in April-June.”

“But we can’t count on a big expansion as it’s likely to take time for vaccine shots to reach the wider population.”

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