Japan’s Economy Shrinks at Same Pace in Q1 as Capex Holds Up
Pedestrians wearing protective masks walk under illuminated signs along a street at night in the Shibuya district of Tokyo, Japan. (Photographer: Kiyoshi Ota/Bloomberg)

Japan’s Economy Shrinks at Same Pace in Q1 as Capex Holds Up

Japan’s economy shrank at the same pace as previously estimated in the first quarter, according to a further revision of data that continued to show the country was in a recession before the pandemic took its heaviest toll.

Gross domestic product shrank an annualized 2.2% in the first quarter compared with the final three months of 2019, the Cabinet Office reported Monday, with business investment showing more resilience than expected.

Economists had forecast a 2.8% contraction following a rare finance ministry move to update capital spending data last week after initial survey results were deemed insufficient given a low response rate from companies dealing with the pandemic.

An official at the Cabinet Office said the smaller-than-expected capex revision shows that the sampling issues had already been partly accounted for in the prior GDP estimate.

Japan’s Economy Shrinks at Same Pace in Q1 as Capex Holds Up

Key Insights

  • “What I’m seeing now is that capital investment is holding up better than I had expected,” said Masaki Kuwahara, an economist at Nomura Securities. “Companies have to invest in research and development and information technology in order to deal with the coronavirus. We see a big drop in machinery investment, but long-term investments like R&D haven’t fallen much.”
  • Monday’s backward-looking data comes before another growth report due mid-month that’s forecast to show Japan’s economy shrank by more than 20% in the second quarter, the most in records going back to 1955.
  • Recent gains in retail sales and industrial production suggest growth began to rebound after a nationwide state of emergency was ended in late May, but analysts caution the recovery is fragile. Widening virus outbreaks in the U.S. and other key markets darken the trade outlook and rising case numbers in Japan’s biggest cities threaten jobs and consumer spending at home.
  • Prime Minister Shinzo Abe already faces spiraling budget deficits after pledging about $2 trillion in stimulus, but an anemic recovery could force his administration to spend more. The government last week said it now sees no chance of balancing the budget before the year ending in March 2030.

What Bloomberg’s Economist Says

“Japan’s economy probably headed into the coronavirus crisis in worse shape than the second reading on 1Q GDP indicated -- pointing to an even weaker trajectory for 2020.”

Yuki Masujima, economist

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  • Growth in business investment was revised down to 1.7% from an earlier estimate of 1.9%.
  • On a non-annualized basis, the economy shrank 0.6% in the three months through March, compared with the 4th quarter of 2019.
  • In nominal terms, GDP grew 0.5% in the first quarter, matching the earlier estimate.

©2020 Bloomberg L.P.

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