Japan’s economy shrinks at same pace in first quarter

TOKYO: Japan’s economy shrank at the same pace as previously estimated in the first quarter, according to a further revision of data that continued to show the country was in a recession before the pandemic took its heaviest toll.

Gross domestic product (GDP) shrank an annualised 2.2% in the first quarter compared with the final three months of 2019, the Cabinet Office reported yesterday, with business investment showing more resilience than expected.

Economists had forecast a 2.8% contraction following a rare finance ministry move to update capital spending data last week after initial survey results were deemed insufficient given a low response rate from companies dealing with the pandemic.

An official at the Cabinet Office said the smaller-than-expected capex revision shows that the sampling issues had already been partly accounted for in the prior GDP estimate.

“What I’m seeing now is that capital investment is holding up better than I had expected,” said Masaki Kuwahara, an economist at Nomura Securities.

“Companies have to invest in research and development (R&D) and information technology in order to deal with the coronavirus. We see a big drop in machinery investment, but long-term investments like R&D haven’t fallen much.”

Monday’s backward-looking data comes before another growth report due mid-month that’s forecast to show Japan’s economy shrank by more than 20% in the second quarter, the most in records going back to 1955.

Recent gains in retail sales and industrial production suggest growth began to rebound after a nationwide state of emergency was ended in late May, but analysts caution the recovery is fragile.

Widening virus outbreaks in the US and other key markets darken the trade outlook and rising case numbers in Japan’s biggest cities threaten jobs and consumer spending at home.