The Japanese economy slowed in the first quarter, but less than expected Business and Economic News

The Japanese economy slowed at a slower pace than in the first quarter, when plant and equipment costs were reduced, but the coronavirus pandemic dealt a major blow to overall demand.

According to separate data, bank loan growth slowed sharply in May, with real wages hovering in April for more than 10 years in April, indicating signs that the world’s third-largest economy was gradually overcoming last year’s pandemic success.

Among the mixed indicators are some reassuring signs for policymakers that they are concerned that the recovery of Japan will lag behind major economies that have spread COVID-19 vaccines much faster and are able to reopen faster.

The decline in gross domestic product (GDP) was mainly due to a smaller decline in public spending and capital, both of which slowed down less than initially thought, offsetting a slightly larger decline in private consumption.

The economy was down 3.9 percent year-on-year in January and March, not as bad as the previous 5.1 percent annual contraction reading, but it still posted its first drop in three quarters, Cabinet Office data showed on Tuesday.

The reading, which exceeded the forecast of a 4.8% drop in economists, is a real contraction between the previous quarter of 1 percent compared to the previous quarter, a decrease of 1.3 percent from the previous quarter.

“Overall, capital spending and private consumption remained weak, which showed a weakness in domestic demand,” said Takeshi Minami, chief economist at the Norinchukin Research Institute. “The most important thing is to recover from the (economic) vaccine problem,” he said, adding that the vaccine rate should reach about 50 percent to achieve economic recovery in the country.

Japan’s latest viral emergency will last until mid-June, just months before the start of the Tokyo Olympics, economists were examining the GDP report this quarter to find signs of additional vulnerability that would indicate a higher risk of contraction. They didn’t get that.

“When you look at the outlook on economics, it’s not bad,” said economist Yoshiki Shinke at the Dai-Ichi Life Research Institute. “The pace of the vaccine is picking up faster than expected and the chances of getting a strong rebound from the third quarter are on the rise.”

Pent-up demand

Capital expenditure fell 1.2 percent from the previous quarter, better than the first 1.4 percent decline and in line with the average forecast of a 1.2 percent loss. Government consumption fell 1.1 per cent, down from the previous 1.8 per cent.

Private consumption, which accounts for more than half of GDP, fell by 1.5% in the previous three months, worse than the initial estimate of a 1.4 per cent decline.

However, Economy Minister Yasutoshi Nishimura said the costs could be recovered when consumers return to the streets.

“If the infections subside, there will be a demand that you will not be able to go out to eat or travel,” Nishimura told reporters after the data was released.

Increase COVID-19

Net exports – or exports minus imports – deducted 0.2 percentage points from growth, and domestic demand fell 0.8 percentage points, not 1.1 percentage points as bad as the previous contribution.

A better-than-expected revision came in April after household spending and exports jumped, although gains increased compared to the deep sinking caused by the pandemic last year.

All loans from Japanese banks rose 2.9% from a year earlier in May, slowing from a record 4.8% growth in April, Bank of Japan data showed on Tuesday.

Inflation-adjusted wages, the barometer of the purchasing power of households, rose 2.1 percent in April from one year to the next, the government said.

The slowdown in bank lending was largely due to the fundamental effect of last year’s growth driven by COVID-19, while falling consumer prices and overtime pay rebounds and part-time workers ’compensation helped raise wages.

The government has come under political pressure to irrigate the fiscal target already extended this year, as it is accumulating the cost of tackling the health crisis.

Since the beginning of the year, Japan’s recovery has been paused repeatedly to try to get virus appeals through emergency declarations.

Prime Minister Yoshihide Suga’s administration has been on a tight rope, narrowing down opportunities in restaurants and bars to calm recent outbreaks, but to keep most other businesses moving forward normally.

This approach allowed the economy to collapse like last year, but the virus has not failed. Meanwhile, the vaccine, which did not enter the country at high speed until the last few weeks, allowed the crisis to drag on, although the number of cases is still well below the US or European level.

Some analysts expect the Japanese economy to shrink further in the current quarter – prompting a technical recession – as the expansion of coronavirus emergency sites to Tokyo and other sites is hurting domestic demand.