Japan recovers economic growth as coronavirus fears subside

TOKYO — The restaurants are full. The malls are full. People are traveling. And Japan’s economy has started growing again as consumers, weary from more than two years of the pandemic, have moved away from precautions that have kept coronavirus infections among the lowest levels of any rich country .

Lockdowns in China, rising inflation and brutally high energy prices failed to suppress Japan’s economic expansion as domestic consumption of goods and services soared in the second quarter of ‘year. The country’s economy, the third largest after the United States and China, grew at an annualized rate of 2.2 percent during that period, government data showed on Monday.

The second-quarter result followed 0 percent growth, revised from an initial reading of a 1 percent decline, in the first three months of the year, when consumers retreated to home to the rapid spread of the Omicron variant.

After the initial wave of Omicron burned out, domestic shoppers and travelers returned to the streets. Then case numbers quickly galloped back to record highs for Japan, but this time the public, heavily vaccinated and weary of self-policing, has reacted with less fear, said Izumi Devalier, Japan’s chief economist. at Bank of America.

“After the Omicron wave ended, we had a very nice jump in mobility, a lot of recovery spending in categories like restaurant and travel,” he said.

The new growth report indicates that Japan’s economy may finally be back on track after more than two years of yo-yoing between growth and contraction. Still, the country remains an economic “laggard” compared to other rich nations, Ms. Devalier, adding that consumers, especially the elderly, “are still sensitive to the risks of Covid”.

Because that sensitivity has slowly declined over time, he said, “we’ve had this very gradual recovery and normalization of Covid.”

Growth in the second quarter came despite strong headwinds, particularly for Japanese small and medium-sized companies.

Covid lockdowns in China have made it difficult for retailers to stock in-demand products such as air conditioners and for manufacturers to source some critical components for their products.

A weak yen and higher inflation have also weighed on businesses. Over the past year, the Japanese currency has lost more than 20 percent of its value against the dollar. While this has been good for exporters, whose products have become cheaper for overseas customers, it has pushed up import prices, which have already become more expensive due to shortages and supply chain disruptions of supply caused by the pandemic and Russia’s war in Ukraine.

Updated

august 12, 2022, 5:21 PM ET

While inflation in Japan (around 2 percent in June) is still much lower than in many other countries, it has forced some companies to raise prices substantially for the first time in years, which could dampen demand of consumers used to paying the same amounts a year. after a year

The gradual return to normal economic activity produced strong growth in private investment, data showed on Monday.

Growth was driven in part by spending to improve corporate sustainability and digital infrastructure, efforts strongly promoted by government policies, said Wakaba Kobayashi, an economist at the Daiwa Institute of Research.

Still, it’s unclear how long that growth can continue, he said. Among many companies, “there is a sense that the global economy will continue to slow down,” he said. The economies of the United States, China and Europe have slowed faster than expected in recent months due to the war in Ukraine, inflation and the pandemic.

Japan faces other challenges both at home and abroad. Small and medium-sized businesses in particular are likely to struggle as pandemic subsidies end and foot traffic to their businesses remains below pre-pandemic levels.

In addition, geopolitical tensions are creating greater uncertainty for Japan’s key industries. Friction between the United States and China over Speaker Nancy Pelosi’s visit to Taiwan this month has raised concerns among Japanese policymakers about potential trade disruptions. Taiwan is Japan’s fourth-largest trading partner and a critical producer of semiconductors, essential components for Japan’s large automotive and electronics industries.

As for Japan’s overall economic outlook, “in the short term, the momentum is quite good, but beyond that, we are quite cautious,” Ms. devalier

At home, he expects consumption to slow as people adjust to the new normal of living with the pandemic and their enthusiasm for spending wanes. Wage growth, stagnant for years, is reducing inflation, which is likely to weigh on spending. And, he said, “for manufacturing and exports we expect a slowdown in momentum that reflects the fact that we expect global growth to be weaker.”

Despite some positive signs, it will still take some time for Japan’s economic activity to normalize, said Shinichiro Kobayashi, senior economist at Mitsubishi UFJ.

The economy has almost returned to the size it was immediately before the pandemic. But even then, it was in a weakened state after an increase in Japan’s consumption tax pushed spending down.

“There are still many reasons for concern,” Kobayashi said, citing inflation and the ongoing pandemic. “The situation is not so bad that we see growth stopping, but we cannot say that things will be fine either.”



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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!