Japan’s economy grew a quarter of double-digit growth and ended the pandemic year in better shape than initially expected, signaling the potential for a safer recovery with the end of the damaging state of emergency.
Gross domestic product increased by 12.7% annually compared to the previous quarter in the three months to December, the Cabinet reported on Monday. The result was better than 22 of the 24 forecasts of the economists surveyed and defied the winter growth of the coronavirus.
The expansion in the fourth quarter helped the economy survive the pandemic year with a contraction of 4.8%, better than economists forecast and less successful than the 5.7% decline in 2009, following the global financial crisis.
Growth in trade and earnings from household spending continued to grow. In the fourth quarter, businesses also increased their investment again, with firms’ spending rising at the fastest pace in more than five years.
Higher corporate spending, after six months of withdrawal, suggests that Japan will now see better prospects once the country puts an end to a state of emergency that is projected to drive the economy back into a bruised contraction this quarter.
“It appears that business spending is ultimately being extracted as a result of the recovery in exports,” economist Hiroaki Muto told Sumitomo Life Insurance Co. “The first quarter will fall again, but we are on a recovery trend.”
Monday’s report showed that on a quarterly basis, Japan’s economy ended 2020, after recovering most of its lost production from March last year, when the coronavirus shook markets and froze global trade, a faster recovery than expected.
The Nikkei’s average of 225 numbers rose 1.1%, to just over 30,000 for the first time since 1990, following the growth report and as Prime Minister Yoshihide Suga confirmed that Japan’s vaccination will begin on Wednesday.
Economy Minister Yasutoshi Nishimura said the results show the economy’s ability to recover, although the country is not yet out of the forest. Consumer spending remains below average, he said, and exports could decline if the virus triggers more restrictions in Europe or other major markets.
The immediate outlook now depends on how long Japan’s state of emergency lasts. The declining number of cases offers hope that restrictions could be lifted in some areas before March 7, the planned end date, but with the hospital’s capacity still extended, this decision has not yet come.
Earlier Monday, Suga said Japan would start firing on medical staff this week, using the vaccine from Pfizer Inc., the first batch to arrive in Japan late last week.
“GDP shows that the economy can recover if the virus does not disrupt things,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities Inc. ready to spend given the low unemployment rate. ”
Government spending, loan support from the Bank of Japan and a corporate culture and employees who have traditionally placed job security ahead of high wages have helped keep unemployment at just 2.9%, a fraction of US rates and shares of Europe.
However, the compromise represented wage cuts that could limit the size of any recovery in consumer spending after the emergency and the recharged demand is exhausted, even if households have a floor below them.
“The best thing is if wages improve and consumption increases, but we are not there yet,” Muto told Sumitomo Life.
In a time of both misinformation and too much information, quality journalism is more important than ever.
By subscribing, you can help us understand the story.
SUBSCRIBE NOW
PHOTO GALLERY (CLICK TO ENLARGE)
