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Japan improves first quarter GDP with less impact on domestic demand

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TOKYO – Japan’s economy contracted at a slower rate than initially reported in the first quarter, due to smaller cuts in spending on plant and equipment, but the coronavirus pandemic still dealt a major blow to overall demand.

Separate data showed that bank loan growth slowed dramatically in May, while real wages posted the biggest monthly jump in more than a decade in April, in signs that the world’s third-largest economy was gradually outgrowing the pandemic. from last year.

Among the mixed indicators are some reassuring signs for policymakers, who are concerned that Japan’s recovery will be delayed in major economies that have rolled out COVID-19 vaccines much faster and may reopen faster.

The revised drop in gross domestic product (GDP) was mainly due to a smaller drop in public and capital spending, which declined less than initially thought, offsetting a slightly larger drop in private consumption.

The economy fell by 3.9% annualized in January-March, not as bad as the preliminary reading of an annualized contraction of 5.1%, but still registering the first drop in three quarters, data from the Cabinet Office showed. on Tuesday.

The reading, which beat economists’ forecast of a 4.8% decline, equates to a real quarter-on-quarter contraction of 1.0% from the previous quarter, compared to a preliminary drop of 1.3%.


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“Overall, capital spending and private consumption remained weak, which showed weak domestic demand,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

“The issue of vaccines is the most important thing for the (economic) recovery,” he said, adding that the vaccination rate should reach around 50% to boost the country’s economic recovery prospects.

Capital spending was down 1.2% from the prior quarter, better than a preliminary 1.4% decline, and was in line with the median forecast of a 1.2% loss. Government consumption fell 1.1%, less than a preliminary 1.8% drop.

Private consumption, which accounts for more than half of gross domestic product, fell 1.5% from the previous three months, worse than the initial estimate of a 1.4% drop.

However, Economy Minister Yasutoshi Nishimura said spending could pick up as consumers return to the streets.

“If infections decrease, there will be a pent-up lawsuit for not being able to go out to eat or travel,” Nishimura told reporters after the data was released.


Net exports, or exports minus imports, subtracted 0.2 percentage points from growth, while the hit to domestic demand reduced it by 0.8 percentage points, not as bad as a preliminary contribution of minus 1.1 points percentage.

The better-than-expected revision comes after household spending and exports surged in April, although earnings were largely inflated compared to last year’s deep pandemic-driven decline.


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Total loans from Japanese banks grew 2.9% in May from a year earlier, slowing at a record pace from a 4.8% rise in April, Bank of Japan data showed on Tuesday.

Inflation-adjusted wages, a barometer of household purchasing power, rose 2.1% in April on a year-on-year basis, the government said.

The slowdown in bank lending was largely due to the base effect of a COVID-driven surge last year, while a drop in consumer prices and spikes in overtime pay and compensation for on-time workers. partial helped raise wages.

The government has been under political pressure to dilute an already extended fiscal target this year as the cost of fighting the health crisis piles up.

Some analysts expect Japan’s economy to register another contraction in the current quarter, pushing it back into a technical recession as an extension of emergency coronavirus restrictions in Tokyo and other major areas hurts domestic demand.

(Reporting by Daniel Leussink; Editing by Sam Holmes)


In-depth reports on the economics of innovation from The Logic, presented in association with the Financial Post.


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