Japan: GDP shrinks at softer rate than previously expected in first quarter
June 8, 2021
According to a comprehensive estimate, GDP decreased 3.9% in seasonally-adjusted annualized terms (SAAR) in the first quarter, somewhat above the 5.1% print from the preliminary estimate but markedly contrasting the 11.7% expansion recorded in the fourth quarter of 2020. On an annual basis, GDP contracted 1.6% in Q1, softening from the 1.9% drop in the preliminary estimate but nevertheless deteriorating from Q4 2020’s 1.1% decline.
Domestically, Q1’s downturn in SAAR terms was broad-based, with the effects of the second state of emergency that ran from the end of January to late March weighing on activity. Household spending fell 5.8%, a steeper contraction than the 5.4% preliminary estimate and sharply contrasting the 9.0% growth recorded in Q4 2020. Likewise, government consumption swung into contraction, declining 4.5% in Q1 (preliminary estimate: -6.9%; Q4 2020: +7.3 SAAR), while fixed investment fell 2.7%, contrasting the 12.5% growth clocked in Q4 2020 (preliminary estimate: -3.8%).
Externally, growth in exports of goods and services slowed in Q1, moderating to 9.2% in SAAR terms from Q4 2020’s 55.7% reading (preliminary estimate: +9.7%), in part due to shortages in semiconductor supplies. Similarly, growth in imports of goods and services moderated to 16.5% in the quarter (preliminary estimate: +16.8%; Q4 2020: +20.7% SAAR). As such, the external sector subtracted 0.9 percentage points from overall growth in Q1, which, although unchanged from the preliminary estimate, contrasted the 4.2 percentage-point contribution in Q4 2020.
Looking ahead, the economy is projected to expand slightly in the second quarter of 2021 as returning capital and consumer spending are bolstered by growth in government spending. However, the announcement in late April of a third state of emergency (SOE)—and its subsequent expansion in mid-May to cover nine major prefectures, including Tokyo—is likely to impede the rebound in activity somewhat.
Regarding the outlook, Makoto Tsuchiya and Shigeto Nagai, economists at Oxford Economics, noted:
“While we think the SOE will not be as disruptive as last year, as evidenced by the limited decline in mobility, the extension will likely cause another quarterly GDP contraction in Q2. But the contraction will be modest as the manufacturing sector should fare better, partly due to strong foreign demand from China and the U.S. […] We see the economic recovery picking up pace in H2 as domestic demand recovers, supported by progress in the vaccine rollout and a buoyant manufacturing sector due to strong foreign demand.”
Author: Stephen Vogado, Economist