TOKYO: Japan's economy is set to recover to pre-pandemic levels by the end of this year, helped by solid exports as well as consumer spending supported by progress in vaccinations, the government said in revised estimates released on Tuesday.
In a mid-year review, the government now forecasts that during the fiscal year to end-March, the economy will expand 3.7% and at some point real gross domestic product (GDP) will exceed the Ñ547 trillion (RM20.5 trillion) marked in October-December 2019.
“Japan‘s recovery will be moderate in the first half of this fiscal year but accelerate in the latter half due to steady gains in exports and capital expenditure,“ the government said, adding there would also be a pickup in services spending.
The forecasts appear to show a weaker expansion than the government's January estimate of 4.0% growth for this fiscal year. But that is largely due to a smaller-than-expected 4.6% contraction for the economy in fiscal 2020.
Growth for the next fiscal year is expected to slow to 2.2% as the pace of exports moderates. But robust domestic demand will lift GDP to a record ¥558 trillion, according to the projections which serve as a basis for policy-making and crafting the state budget.
The forecasts follow a central bank report on Monday that painted a cautiously upbeat view on regional economies in a sign policymakers prefer to hold off on ramping up monetary or fiscal stimulus measures any time soon.
The world's third-largest economy is currently lagging the United States, Britain and many European countries in vaccinations. Rising infection numbers have forced Japan to maintain “quasi” state of emergency curbs weeks before the Tokyo Olympic Games begin on July 23.
In another development, Japan's household spending rose at a double-digit rate in May as consumers bought cars and mobile phones, though the pace of growth slowed from the prior month as a new wave of Covid-19 infections weighed on consumer confidence.
Household spending grew 11.6% year-on-year in May, the third month of gains, after a 13.0% rise in April, government data showed on Tuesday.
But the gains were heavily skewed by the recoil effect from last year's plunge, when the pandemic and a nationwide state of emergency shuttered businesses and disrupted day to day life.
Stripping out big-ticket items like housing, cars and gifts, household spending was up 8.9% year-on-year, but down 6.5% compared to the same month two years earlier – a sign the recovery is taking time to bed in.
“It will be hard for services spending to recover if curbs on economic activity are not lifted completely,“ said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute. “While the vaccination rollout is progressing more quickly than thought, its (economic) impact may not be seen until September or later.”
The month-on-month figures showed a 2.1% contraction compared with a forecast decline of 3.7%, the Ministry of Internal Affairs and Communications data showed.
While May's expenditure declined less from the previous month than thought, weak car sales in June – partly due to the impact on supply of a semiconductor shortage – were likely to weigh on last month's spending, Tsunoda said.
The spending growth in May is unlikely to dispel worries that Japan is lagging recoveries seen in other major economies such as the United States, which the International Monetary Fund is forecasting to grow 7.0% this year - the fastest pace in a generation.
The combination of the risk of another spike in infections and a late vaccination drive in the nation has dented both consumer and business confidence.
Separate data on Tuesday showed inflation-adjusted real wages in May posted the biggest year-on-year rise since June 2018, in part due to a year-on-year surge in overtime pay.
Some analysts fear Japan's economy may fall back into recession in the second quarter, defined as two straight quarters of contraction, as consumer and business confidence took a hit from measures to stem a rise in coronavirus infections.
On Monday, a private business survey showed Japan's services sector activity shrank for the 17th straight month in June. – Reuters
Source: The Sun Daily
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