Japan’s Economy Shrinks Less as Analysts Question Capex Data
Analysts warn the latest revised figures may offer a misleading view of the economy’s health as the virus hit.
(Bloomberg) -- Japan’s economy shrank less than initially estimated in the first quarter due to surprisingly strong business investment, but analysts warn the latest revised figures likely offer a distorted view of the economy’s health.
The latest data show the economy contracted at an annualized pace of 2.2% last quarter, less than a 3.4% drop in initial calculations. But the result was based on a survey that probably overstated the strength of business investment amid the coronavirus pandemic. Analysts say first quarter figures are likely to be revised down later.
The result still means Japan’s economy has been stuck in reverse for two straight quarters, with an even sharper contraction expected in the April-June period. Economists see gross domestic product shrinking more than 20% this quarter, the most in records going back to 1955.
Even before the revised figures were released, economists were casting doubt on their accuracy because of unusually strong business investment readings last week used to tweak the overall growth numbers. The finance ministry said its corporate survey had a low response rate amid the pandemic that may have skewed the results, adding that it would release updated figures next month.
Monday’s GDP report showed capital spending jumped 8% on an annualized basis compared with the previous quarter. The initial reading showed capex falling 2.1%.
Firms hit hard by the pandemic may not have had the time or resources to respond to government inquiries in the usual way, an issue that’s likely plagued a wide range of reports, not just the corporate survey. As a result, policy makers are working with a murky picture of conditions in the midst of the most trying economic crisis in decades.
“GDP data for this quarter is also likely to include data from April and May that doesn’t quite reflect reality,” said economist Mari Iwashita at Daiwa Securities. Many Japanese statistics partly rely on officials who physically go and interview companies and individuals to collect data, she added. “It’s really difficult to make policy judgments based on confusing numbers.”
Economy Minister Yasutoshi Nishimura said he wanted the updated ministry figures to be reflected in the next revision of GDP. He vowed to ensure that the economy would get no worse than its condition in April-May, adding that government action would help boost a domestic-led recovery when the timing was right.
He also denied that a sales tax hike last year had left the economy in a vulnerable state leading into the pandemic. Speaking separately, Finance Minister Taro Aso said the government had no plans to lower the sales tax in response to the virus.
BOJ Is Said to See Need to Include Firms’ Solvency on Radar
The government last month doubled its proposed stimulus measures to about $2 trillion, or more than 40% of GDP, to give lifelines to businesses and households. Some analysts say the packages won’t do enough to boost spending and more aid will be needed.
A separate report today showed bank lending rose at the fastest pace in decades in May, as companies rushed to secure financing amid the crisis, another sign of recession trauma.
Prime Minister Shinzo Abe ended a national state of emergency slightly ahead of schedule two weeks ago, but a resurgence of the virus in Tokyo suggests consumer spending could stay subdued and a jump in the numbers of workers on leave could be a harbinger of wider layoffs ahead.
Meanwhile, export markets are also struggling to reopen, casting a further shadow on the outlook for the economy.
What Bloomberg’s Economist Says
“The bigger picture remains the same -- the drop put Japan into recession, and the contraction in 2Q is sure to be much deeper as the impact of coronavirus containment measures and weaker external demand take a toll.”
--Yuki Masujima, economist
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