Consumption in Japan

Japan - Consumption

Comprehensive estimates confirm economy contracted in Q1 2020 but less than expected

The economy contracted 2.2% in the first quarter of 2020 compared to the previous quarter in seasonally-adjusted annualized terms, according to comprehensive estimates (previously reported: -3.4% SAAR; Q4 2019: -7.2% SAAR).

According to the revised estimates, fixed investment increased 2.4% in the first quarter in compared to the previous quarter in SAAR terms, contrasting both the initial estimate of a 4.0% decrease and the 12.7% decrease in Q4 2019. The other components of GDP were largely left unchanged: Private consumption decreased 3.0% (previously reported: -2.8% SAAR; Q4 2019: -11.1%) and government consumption increased an unrevised 0.2% (Q4: +0.8% SAAR). On the external front, exports of goods and services fell 21.9% in Q1 (previously reported: -21.8% SAAR; Q4: +1.7% SAAR) and imports fell 18.3% (previously reported: -18.4% SAAR; Q4: -9.3% SAAR).

In terms of Q2 2020, the economy will likely contract in SAAR terms for the third consecutive quarter, although most of the damage will likely come early in the quarter as the government ended the national state of emergency in May.

Analysts at Nomura said:

“Although restrictions on economic activity as a result of Covid-19 look to be over the worst, the subsequent recovery in economic activity is likely to be an extremely slow L-shaped one. Under these circumstances, we think that the Japanese government will have to gradually come up with measures to stimulate demand while striking a balance with restrictions on activity to ensure that infections remain under control. We see a strong likelihood of additional supplementary budgets on top of the second supplementary budget for FY20 that has already been agreed, and think that they will probably include major public works packages designed to stimulate employment and demand.”

Our panelists project the economy to contract 4.7% in 2020, which was down 0.8 percentage points from the previous month’s projection, and grow 2.6% in 2021.