TOKYO- Japan’s economy shrank more than expected in the first quarter as a slow vaccine rollout and new COVID-19 infections hit spending on items such as dining out and clothes, raising concerns the country will lag others emerging from the pandemic.
Capital expenditure also fell unexpectedly and export growth slowed sharply, a sign the world’s third-largest economy is struggling for drivers to pull it out of the doldrums.
The dismal reading and extended state of emergency curbs have heightened the risk Japan may shrink again in the current quarter and slide back to recession, defined as two straight quarters of recession, some analysts say. “Global chip shortages caused a marked slowdown in exports, putting a drag on capital spending
as well,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. “Consumption will probably remain stagnant, raising risks of an economic contraction in the current quarter.”
The economy shrank an annualized 5.1 percent in the first quarter, more than the forecast 4.6 percent contraction and following an 11.6 percent jump in the previous quarter, government data showed on Tuesday.
The decline was mainly due to a 1.4 percent drop in private consumption as state of emergency curbs to combat the pandemic hit spending for clothing and dining out.
But the bigger-than-expected contraction also reflected a surprise 1.4 percent drop in capital expenditure, which confounded market expectations for a 1.1 percent increase as companies scaled back spending on equipment for machinery and cars. While exports grew 2.3 percent thanks to a rebound in global demand for cars and electronics, the pace of increase slowed sharply from the previous quarter’s 11.7 percent gain, a worrying sign for an economy still reeling from weak domestic demand.
Domestic demand knocked 1.1 percent point off gross domestic product (GDP), while net exports shaved off 0.2 point, the data showed.
“That domestic demand is weak shows the adverse effects from the coronavirus haven’t been shaken off at all,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
