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Japan’s economic output fell 1.3% in the first quarter of 2021, a 5.1% drop at an annualized rate, as a renewed state of emergency of the Covid-19 affected consumer spending.
The decline was a little worse than analysts’ expectations of a 1.2 percent drop, and marked a return to contraction after the economy expanded in the last quarter of 2020.
The sharp decline in production suggested that Asia’s largest rich economy will take a long time to recover from the pandemic due to its late deployment of coronavirus vaccines.
With large Japanese cities still under restrictions to control the spread of Covid-19, the economy could shrink further in the second quarter, prompting economists to cut growth forecasts for the full year.
“We probably still have to do a downward revision of full-year GDP for 2021,” Rob Carnell, Asia-Pacific head of research at ING, said. Most analysts had forecast growth of more than 3% year-over-year, but to reach that level will now require a big rebound in the second half.
Therefore, Japan is likely to lag behind the economic recovery in Europe and the United States, where the rapid release of vaccines was combined with a great fiscal stimulus under President Joe Biden has driven a rapid recovery in demand.
Japan declared a renewed state of emergency for Covid-19 in early January, which expanded later in March, affecting the economy for most of the first quarter. According to the emergency statement, people were asked to work from home when possible and restaurants were ordered to close at 8 p.m.
Another state of emergency began in late April, but has failed to control the number of cases and Japanese authorities have expanded the geographical scope and severity of the restrictions.
Infections occur around 6,000 a day, the highest level since early January. Medical systems in parts of the country are under stress.
The need for continued public health restrictions is based on the slow progress of vaccinations. Japan has given a first dose to 4.4 million people, only 3.5% of the population, making it one of the slowest launches in the industrialized world.
The weakness was widespread to the whole economy during the first quarter. Consumption fell by 0.7 percentage points compared to total production and business investment contributed 0.2 percentage points to the fall, with public spending and net exports also weak.
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