Japan’s economy is shrinking again

Economically, the country appeared to have left the pandemic behind. But with the third wave of the virus, Japan’s economic output fell 1.3 percent in the first quarter. The outlook is muted.

A couple takes photos in front of closed restaurants in Tokyo.

Dhe Japanese economy shrank by 1.3 percent at the beginning of the year as a result of the third wave of coronavirus. After two quarters of strong growth in which the country left the Covid recession behind, there is currently a threat of a further flare-up in the number of new infections, a further delay in the economic upturn.

The pandemic proved to be the greatest negative factor for the economy in the period from January to March. After the third wave of coronavirus swelled in Japan at the turn of the year, the government imposed the second virus emergency on the country’s metropolises at the beginning of January, which lasted almost until the end of March in the Tokyo area. The population was called upon to work from home to a large extent and to avoid public spaces. Restaurants and bars had to close early in the evening. The restrictions and the uncertainty caused private consumption to shrink by 1.4 percent compared to the previous quarter, according to preliminary figures from statisticians.

Companies also held back with investments, which shrink by 1.4 percent. The only growth factor was exports, which increased by 2.3 percent compared to the previous quarter. A strong increase in imports, of course, meant that foreign trade as a whole slowed growth.

Japan in the fourth wave

The prospects for further development are modest. The country is currently experiencing a fourth wave of coronavirus. The third virus emergency has been in force in the Tokyo and Osaka areas since the end of April and has now been expanded to nine prefectures. Calls to introduce restrictions nationwide are growing louder.

The number of seriously ill Covid patients is currently reaching record levels. The vaccination campaign against the corona virus is running slowly. Only a few percent of the population have so far received a vaccination. At the current pace, it will be difficult for the government to vaccinate Japanese people aged 65 and over as promised by the end of July.

According to economists, all of this will further weaken consumption. On the other hand, exports and production should benefit from the recovering global economy. In surveys, the majority of economists expect meager growth of 0.5 percent this quarter. Marcel Thieliant from Capital Economics expected stagnation and at the same time emphasized that the risks for growth are pointing downwards.

Last year the economy shrank by 4.7 percent. Like Germany, Japan was one of the countries that had not coped particularly well with the pandemic economically, but also not particularly badly. Japan was also weakened because an increase in consumption tax had plunged the country into recession even before the pandemic. The shrinkage in the first quarter of this year was less bad at minus 1.3 percent than in Germany with minus 1.7 percent.

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