Japan’s economy – buffeted by Covid-19 curbs and surging commodity prices – shrank for the first time in two quarters in the first three months of 2022.
Data issued on Wednesday fuelled fears of stagflation – a mix of weak growth and rising inflation – as the world’s third-largest economy contracted at an annualised rate of 1.0% in January-March from the previous quarter.
The gross domestic product (GDP) figures showed a slower contraction than the 1.8% expected by economists.
That translated into a quarterly GDP drop of 0.2%, the Cabinet Office data showed, versus market forecasts for a 0.4% drop.
Japan May Unleash More Stimulus
The weak reading may pressure Prime Minister Fumio Kishida to release even more stimulus with upper house elections due on July 10, following 2.7 trillion yen ($20.86 billion) in extra budget spending.
“The economy will return to growth in the coming quarters but it won’t be a dramatic recovery, leaving the possibility of further spending wide open as elections draw near,” Hiroshi Shiraishi, a senior economist at BNP Paribas Securities, said.
“The lockdown in China and US rate hikes as well as the Ukraine crisis could weigh on external demand. Declines in household and corporate real income due to worsening terms of trade may hamper recovery in domestic demand.”
Private consumption, which makes up more than half of the economy, fell slightly, versus a 0.5% fall expected by economists, the data showed.
Many analysts expect Japan’s economy to rebound in coming quarters, helped by easing coronavirus curbs.
“Supply-side constraints could remain a drag on production and export activity, but we expect a return to positive GDP growth with a recovery in services consumption,” Barclays analyst Kazuma Maeda said.
- Reuters, with additional editing by George Russell