Japan’s Economic Surge Set to Slow as Virus Strikes Back
Japan’s biggest expansion in more than a half century outpaced expectations as exports and consumption powered growth.
(Bloomberg) -- Japan’s biggest expansion in more than a half century outpaced expectations as exports and consumption powered growth, though the recovery is likely to cool this quarter as the virus sets new infection records at home and overseas.
Gross domestic product grew an annualized 21.4% in the three months through September from the previous quarter, expanding at the fastest clip since 1968, helped by government stimulus that fueled a sharp jump in consumer spending and a strong pickup in trade. Economists had forecast an 18.9% expansion.
Still, the rapid expansion only managed to claw back about half of the growth lost since last year, less than some other major economies. With the virus’s resurgence likely to keep a keep a lid on further export and consumption gains, the government is already making plans to add to stimulus.
“There is no way we can be optimistic about the outlook,” said Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute. “Virus cases are rising at home and abroad and that will weigh on global demand and household sentiment.”
| Japan’s third-quarter growth figures (annualized) | |
|---|---|
| Gross domestic product | +21.4% |
| Private consumption | +20.1% |
| Exports | +31.3% |
| Business investment | -12.8% |
Concern the economy will lose steam last week prompted Prime Minister Yoshihide Suga to call for a third extra budget. New spending would add to Japan’s mountain of debt, but is seen as necessary as the boost from the government’s earlier cash handouts weakens and funds for a job furlough program run out.
Japan’s economy minister Yasutoshi Nishimura, speaking after the GDP report, said the pace of recovery would have been faster had it not been for an earlier uptick in virus cases during the summer that weighed on consumer spending.
What Bloomberg’s Economist Says...
“Additional public spending should help the economy. But with fresh cases of Covid-19 picking up again -- raising the prospect of new containment measures -- a slowdown in the recovery is inevitable..”
--Yuki Masujima, economist
For the full report, click here.
Japan’s number of new virus cases hit a record of 1,722 on Saturday, topping the summer peak. Fresh cases rose above 1,000 for a sixth day on Sunday, a level that is likely to discourage people from shopping and eating out, even if the government doesn’t move to adopt new restrictions.
The resurgence is fueling fears that recovery momentum could be lost at a critical time. Nishimura said the overall state of the economy would be taken into consideration when deciding on the size of stimulus and pledged to bring the economy back to its pre-Covid size by 2022.
“Government measures like Go-To Travel subsidies helped boost consumption, but what concerns me is business investment fell more than I expected,” said economist Harumi Taguchi at IHS Markit. “As the virus spreads again, companies are cutting back on hiring and, once government measures expire, low wages may weigh on consumption.”
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