Japan’s biggest expansion in more than a half century outpaced expectations as exports and consumption powered growth, though the recovery is likely to cool this quarter as the virus sets new infection records at home and overseas.
Gross domestic product grew an annualized 21.4% in the three months through September from the previous quarter, expanding at the fastest clip since 1968, helped by government stimulus that fueled a sharp jump in consumer spending and a strong pickup in trade. Economists had forecast an 18.9% expansion.
The nation’s biggest growth spurt in more than a half century shows the economy is back on a recovery path after three straight quarters of contraction that started with a sales tax hike last year before the collapse that came with COVID-19’s first wave.
Still, the rapid expansion only managed to claw back about half of the growth lost since last year, less than some other major economies. With the virus’s resurgence likely to keep a lid on further export and consumption gains, the government is already making plans to add to stimulus.
"There is no way we can be optimistic about the outlook,” said Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute. "Virus cases are rising at home and abroad and that will weigh on global demand and household sentiment.”
Concern the economy will lose steam last week prompted Prime Minister Yoshihide Suga to call for a third extra budget. New spending would add to the country’s mountain of debt, but it’s seen as necessary as the boost from the government’s earlier cash handouts weakens and funds for a job furlough program run out.
Economy revitalization minister Yasutoshi Nishimura, speaking after the GDP report, said the pace of recovery would have been faster had it not been for an earlier uptick in virus cases during the summer that weighed on consumer spending.
Japan’s number of new virus cases hit a record of 1,722 on Saturday, topping the summer peak. Fresh cases rose above 1,000 for a sixth day on Sunday, a level that is likely to discourage people from shopping and eating out, even if the government doesn’t move to adopt new restrictions.
The resurgence is fueling fears that recovery momentum could be lost at a critical time. Nishimura said the overall state of the economy would be taken into consideration when deciding on the size of stimulus and pledged to bring the economy back to its pre-COVID-19 size by 2022.
"Government measures like Go To Travel subsidies helped boost consumption, but what concerns me is business investment fell more than I expected,” said economist Harumi Taguchi at IHS Markit. "As the virus spreads again, companies are cutting back on hiring and, once government measures expire, low wages may weigh on consumption.”
Last quarter’s rebound was driven by improved trade with the U.S. and China, a comeback for the auto industry and a jump in household spending as the country reopened from a five-week state of emergency and the government encouraged domestic travel. Weak business investment held back the overall growth pace.
The recovery’s speed now depends largely on the path of the virus, as many countries head into winter. New waves slamming the U.S. and Europe threaten Japanese trade. At home, though the spread is moderate compared to other places, authorities are hinting at stricter restrictions.
Nonannualized GDP rose by 5% from the prior quarter, compared with a consensus estimate of 4.4%.
Nominal GDP expanded 5.2%. Economists forecast 4.6%.
Private consumption gained 4.7% from the previous quarter, compared with a 5.2% increase forecast by analysts.
Business investment fell 3.4%, worse than the 2.9% decline predicted by analysts.
Net exports of goods and services was the biggest contributor to last quarter’s expansion, adding 2.9 percentage points to nonannualized GDP growth.
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