Japanese economy rebounds as Covid restrictions ease | Japan

Japan’s economy recovered strongly in the second quarter, joining the turn seen in the G7 countries as the easing of lockdown restrictions rushed consumers to the shops.

The world’s third-largest economy exceeded City analysts’ expectations and also benefited from the recovery in global trade with strong exports.

After falling 0.9% in the first quarter, economic output grew by 0.3% in the second quarter, or by 1.3% according to the annualized calculation more often quoted by Tokyo. Analysts had expected annual growth to be just 0.7%.

However, the state of emergency imposed in the closing days of the Summer Olympics to deal with the Delta variant and a broader slowdown in China and the US are expected to dampen momentum in the third quarter.

There’s not much to be optimistic about the outlook with a spike in infections increasing the likelihood of tighter restrictions on activity, said Yoshiki Shinke, the chief economist at the Dai-ichi Life Research Institute.

The Japanese economy has stagnated in the first half of this year and there is a risk of a contraction in July-September. A clear recovery in growth will have to wait until the end of the year.

The recovery in the second quarter was also more modest than in the US, where second-quarter GDP growth increased by 6.5% year-on-year. The 19-member eurozone reported a 2% increase in GDP in the second quarter, while the UK, which experienced one of the worst pandemic-induced slumps in 2020, experienced a 4.8% increase in GDP.

Following a low infection rate at the start of the Covid outbreak, Tokyo has struggled to contain the pandemic and has recently faced resistance from households to further restrictions. The latest state of emergency is the third in the country since March.

Economy Minister Yasutoshi Nishimura said: I have very mixed feelings about this GDP result. It shows that the consumer appetite of households is very strong, despite the emergency inhibitors. Our priority is to prevent the spread of the virus. It is very bad for the economy if this situation continues.

A record number of gold medals for Japan at the Tokyo Olympics probably wouldn’t have boosted consumption, analysts said, after the games were held behind closed doors for the two weeks leading up to Aug. 8.

Takeshi Minami, the chief economist at the Norinchukin Research Institute, described the second-quarter performance as weak after low vaccination rates curtailed an even bigger rebound in consumer spending.

A spate of Delta variant cases in Asia has led to supply chain disruptions for some Japanese manufacturers, which could weigh on factory output and add to the gloom for an already fragile recovery.