Asia

Japan extends economic recovery as exports, capex shake off COVID pain

TOKYO (Reuters) – Japan’s economy expanded more than expected in the fourth quarter, extending its recovery from its worst postwar recession as a rebound in overseas demand boosted exports and capital expenditure.

FILE PHOTO: Pedestrians wearing protective masks amid the coronavirus disease (COVID-19) outbreak, walk on a street in Tokyo, Japan, February 2, 2021. REUTERS/Kim Kyung-Hoon/File Photo

But the recovery slowed from the third quarter’s blistering pace, underscoring the challenge policymakers face in preventing the spread of the coronavirus without choking off a fragile recovery.

The world’s third-largest economy grew an annualised 12.7% in October-December, government data showed on Monday, marking the second straight quarter of increase and exceeding a median market forecast for a 9.5% gain.

It was a slowdown from a revised 22.7% surge in the previous quarter, when the economy got a lift from pent-up demand after a previous state of emergency was lifted in May.

“The fourth-quarter recovery turned out stronger than expected,” said Masaki Kuwahara, senior economist at Nomura Securities.

“It’s true the economy contracted for the year 2020. But it has been steadily picking up since summer, driven by domestic and external demand.”

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

A global rebound in manufacturing activity also gave exports and capital expenditure a much-needed boost, the data showed.

External demand, or exports minus imports, added 1.0% point to fourth-quarter GDP growth. Capital expenditure grew 4.5%, marking the first increase in three quarters, the data showed.

For the full coronavirus-stricken year, Japan’s economy contracted 4.8%, marking the first annual fall since 2009.

Japan’s economy has gradually emerged from last year’s initial state of emergency curbs thanks to a rebound in exports.

But the government’s decision to roll out new restrictions from January has heightened the chance of another recession, clouding the outlook for a fragile recovery.

Takumi Tsunoda, senior economist at Shinkin Central Bank Research, expects a complete recovery from the pandemic slump to be difficult as Japan lags western economies in vaccine distribution.

“The conditions are such that Japan will not be able to avoid negative growth in the first quarter,” he said.

“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.”

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