Economy

Japan’s economy expands 5.4% in fourth quarter after Covid curbs eased

A relaxation of Covid-19 restrictions prompted a boost in consumer spending and a rebound in Japan’s economy during the last three months of 2021, though the bounce was not as strong as in the US.

Japan’s gross domestic product rose an annualised 5.4 per cent during the October-to-December period, according to figures released by the Cabinet Office on Tuesday. A consensus of analysts polled by Reuters had expected a 5.8 per cent rise.

But analysts warned that the economy probably lost steam after December, when the Omicron variant started to take hold, the yen softened and rising oil prices began to weigh on a Japanese economy dependent on energy and food imports.

On a quarter-on-quarter basis, the Japanese economy posted a rebound of 1.3 per cent after a fall of 0.7 per cent in the July-to-September period.

Consumer spending, which makes up more than half of Japan’s GDP, increased 2.7 per cent from the previous quarter as restaurants, entertainment and travel sectors benefited from what were then historically low rates of Covid-19 infections.

The government lifted a state of emergency at the end of September, triggering a return to workplaces for many employees and a revival of lunchtime and post-work dining.

The rebound in consumer spending, which was a shade higher than economists had expected, returned it to above the level in the final three months of 2019, the last quarter unaffected by Covid restrictions.

Semiconductor shortages and other supply constraints eased, allowing automobile companies to boost output to make up for reduced production and resulting in a 9.7 per cent increase in the spending of consumer durables. Exports posted a 1 per cent rise.

The latest result “serves as a reminder of how important it is to keep the economy moving, as the real GDP has largely recovered to pre-Covid levels, while reducing the threat of infectious diseases throughout society”, said Daishiro Yamagiwa, economy minister.

Although there was a robust recovery in service consumption and production, “the rebound in capex appeared weaker than expected, due to ongoing supply chain disruptions”, said Tomohiko Kozawa, an economist of the Japan Research Institute. Capital expenditure rose 0.4 per cent.

Growth in Japan was weaker than in the US, where GDP accelerated at a 6.9% annualised pace in the fourth quarter.

For the whole of 2021, Japan’s economy rose 1.7 per cent, turning positive for the first time in three years. In 2020, Japan posted a 4.5 per cent decrease.

But economists believed that Omicron, which has dented domestic travel and caused some manufacturers to halt production, will have caused a retreat or even a contraction in consumer spending during the January to March quarter of 2022.

“It would be unavoidable to post a significant drop, or even contraction, for this year’s first quarter, as not only the Omicron spread but also the price hike in energy and food are hitting the overall spending,” said Kozawa.

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