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Japan's first-quarter GDP declines less than expected due to higher consumption

Image: Reuters Berita 24 English -  Private consumption remained resilient in the face of rising COVID-19 infections, and firms rebuilt thei...

Image: Reuters

Berita 24 English - Private consumption remained resilient in the face of rising COVID-19 infections, and firms rebuilt their stock, offsetting a dip in business spending, causing Japan's GDP to shrink somewhat less than previously estimated in the first quarter.

While the reduced decline is encouraging for policymakers looking for a return to growth this quarter, supply chain disruptions continue to be a threat to the economy's momentum in April and June.

Japan's economy shrunk by 0.5 percent on an annualized basis in January-March, according to revised GDP statistics provided by the Cabinet Office on Wednesday. That was a lesser reduction than last month's preliminary reading of a 1.0 percent drop.

GDP fell 0.1 percent quarter over quarter, exceeding median market projections of a 0.3 percent dip.

Because of a larger contribution from mobile phone fees and automobile sales, private consumption, which accounts for more than half of Japan's GDP, grew 0.1 percent in the first quarter from the previous three months, revised up from a flat reading.

According to Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute, an increase in inventories aided growth, indicating that automakers and other firms were seeking for solutions to deal with supply chain challenges.

This helped offset a 0.7 percent drop in capital spending, but it could mean slower GDP growth in the coming quarter as inventory expansion slows.

"Growth is expected to come in positively, but that isn't going to contribute to a broad sense of recovery," Tsunoda said, citing the negative impact of China's tight coronavirus lockdowns in the second quarter.

"Because Japan's economy is strongly reliant on Asian supply lines, China's lockdowns will have a significant impact."

Domestic demand as a whole accounted for 0.3 percentage point of the revised GDP statistics, while net exports accounted for 0.4 percentage point.

Separate statistics released on Wednesday revealed that Japan's current account surplus dropped substantially in April as record imports outpaced exports, raising concerns about the country's long-term spending power amid a sinking yen.

The GDP boost came after data released on Tuesday showed that household expenditure fell more than expected in April, as the yen's steep depreciation and rising commodity prices pushed up retail prices.

Reuters polled economists last month, and they predicted 4.5 percent annualized growth this quarter. Although risks are increasing, the majority of respondents believe that growth will be robust enough for the economy to recover to pre-pandemic levels.

According to Stefan Angrick, Senior Economist at Moody's Analytics, Japan's economy is still in trouble.

He said in a note that "external disruptions resulting from Russia's invasion of Ukraine and COVID-19 lockdowns in China are a big burden." "Supply bottlenecks are putting downward pressure on exports, manufacturing, and, increasingly, investment spending."

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