Asia

Japan's economic recovery from pandemic likely stalled in fourth quarter

TOKYO (Reuters) – Japan’s economic growth likely moderated in October-December after rebounding from its worst postwar recession earlier in 2020, a Reuters poll showed, a sign households and companies have yet to recover from the coronavirus pandemic’s huge hit.

FILE PHOTO: High-rise buildings are seen at the Shinjuku business district during sunset in Tokyo, Japan, March 7, 2017. Picture taken March 7, 2017. REUTERS/Toru Hanai

A state of emergency rolled out in January has inflicted further pain on consumption, stoking fears of another economic slump that could push Japan back into deflation.

Analysts polled by Reuters expect the economy to have marked a quarter-on-quarter expansion of 2.3% in October-December, as improving exports made up for some of the weakness in consumption.

However, that would be much slower than a 5.3% jump in the third quarter, when the lifting of the previous state of emergency helped the economy emerge from its worst postwar slump in the April-June quarter.

“Consumption, especially service spending, will continue to decline while restrictions apply on economic activity,” said Masato Koike, an economist at Dai-ichi Life Research Institute.

“A slump in January-March consumption is unavoidable.”

Underscoring the heavy toll the pandemic took on the fragile economy, the central bank’s estimates in January show the economy likely shrank 5.6% in the year ending March.

Japan’s October-December gross domestic product (GDP) data, set for release at 8:50 a.m. on Feb. 15 (2350 GMT, Feb. 14), will likely highlight the challenges policymakers face in supporting the economy while preventing the spread of the virus.

On an annualised basis, the economy likely expanded 9.5% in October-December after a 22.9% gain in the previous quarter, the poll showed.

Graphic – Japan’s economy is expected to grow in fourth quarter:

(For an interactive graphic of Japan’s quarter-on-quarter GDP growth, click: tmsnrt.rs/2MZu5Sl)

Even if the economy rebounds at the estimated pace in the final quarter of last year, it will remain at roughly 80% the level before the pandemic struck in March, analysts say.

Private consumption, which accounts for more than half of the economy, likely rose just 1.8% in October-December after a 5.1% increase in the previous quarter, the poll showed.

Capital spending was projected to have risen 2.6%, which would be the first increase since January-March last year.

External demand – or exports minus imports – likely contributed 1.0 percentage point to October-December GDP growth, according to the poll.

“Brisk overseas demand underpinned exports, while domestic demand got some boost from the government’s stimulus measures,” said Shinichiro Kobayashi, senior economist at Mitsubishi UFJ Research and Consulting. “But the outlook remains uncertain.”

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