Japan’s sharp economic rebound in the last quarter likely recovered only around half the growth lost during the initial stages of the pandemic, official data is expected to show Monday, with weak business investment contributing to slowing momentum going forward.
Economists see gross domestic product jumping at an annualized pace of 18.9% in the three months through September, helped by improved trade with the United States and China, a comeback for the auto industry and the biggest increase in household spending since the start of the millennium.
That would be the biggest growth spurt since 1968. But it will take three years for GDP to regain its peak before COVID-19 and a 2019 sales tax hike, according to economist Yoshimasa Maruyama at SMBC Nikko Securities. The nation's economy in the April-June period shrank an annualized 27.8% in real terms from the previous quarter.
Concern that the recovery will lose steam without more government aid compelled Prime Minister Yoshihide Suga on Tuesday to call for a third extra budget. New spending will add to Japan’s mountain of debt, but it’s seen as needed with the impact of existing measures weakening and fresh virus waves in Europe and the U.S. putting an improvement in exports at risk.
Virus cases are also surging again in Japan, generating concern that tougher action is necessary despite the country’s relative success in containing the epidemic. Renewed voluntary restrictions could quickly cool the consumer spending surge.
Companies are also unlikely to ramp up spending with the outlook so uncertain, even amid hopes for an early vaccine. Economists estimate capital spending fell 2.9% on a nonannualized basis from the April-June period, when it slid 4.7%. Investment is seen turning only slightly positive this quarter.
Business spending was an important prop for the economy before the pandemic, making a recovery of boardroom investment appetite a key factor in the speed of Japan’s recovery.
Outlays on work-from-home systems needed during the pandemic has so far helped prevent an even bigger weakening of capital expenditure. Disruptions to supply chains during the crisis, on top of the ongoing U.S.-China trade war, have also created an incentive for some spending to make production more shock-resilient.
Sytecs Co., a midsized maker of car and chip-related parts with operations in China, is one of about 70 Japanese companies taking advantage of government subsidies to encourage more domestic investment. The firm is expanding a plant in Gunma Prefecture.
"It doesn’t make sense any longer to just concentrate on China,” Sytecs Chairman Shuichi Saito said.
Still, many businesses are likely to remain cautious, especially in the service sector.
Government travel subsidies have helped Hato Bus Co., a Tokyo-based tour operator, stay afloat, but sales are down and overseas visitors aren’t likely to return soon, according to Yusei Ishikawa, head of business management at the company.
"We’ve halted almost all our plans to buy new buses,” he said. "There’s no other choice.”
By subscribing, you can help us get the story right.
Your news needs your support
Since the early stages of the COVID-19 crisis, The Japan Times has been providing free access to crucial news on the impact of the novel coronavirus as well as practical information about how to cope with the pandemic. Please consider subscribing today so we can continue offering you up-to-date, in-depth news about Japan.