Economists are warning that the potential explosive spread of infections with variant strains of the novel coronavirus and a delay in vaccinations may put further downward pressure on the Japanese economy.
The nation’s gross domestic product expanded at an annual rate of 11.7 % from the previous quarter in price-adjusted real terms in October-December 2020, maintaining double-digit growth following a 22.8% gain in July-September in the same year, according to a revised GDP report released by the Cabinet Office on Tuesday.
In the January-March period, however, it is widely seen inevitable that the economy will shrink as the government was slow in responding to a new wave of COVID-19 infections, which has been battering the country since late last autumn.
The October-December GDP growth rate was revised down from a preliminary rise of 12.7% mainly due to a decrease in private-sector inventories, notably those of raw materials.
But economists positively interpreted the reduction of inventories, saying it resulted from a recovery in aggregate demand such as exports. They also took note that a downward revision made to the capital spending figure in the latest GDP report was very small.
Economic and fiscal policy minister Yasutoshi Nishimura said the GDP data for the third quarter of fiscal 2020 suggested that the Japanese economy “has potential for recovery.”
While the resumption of economic activities since last summer helped expand the economy, it is believed to have led to the renewed wave of coronavirus infections, which prompted the government to declare a second state of emergency for parts of the country in January.
Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute Inc., expects Japan’s real GDP to contract by an annualized rate of 7.2 % in January-March.
Even if the GDP grows again in April-June or later, “The pace of pickup is likely to be curbed in 2021 by restrictions put by steps to prevent infections,” Shinke said.
The state of emergency for Tokyo and the surrounding prefectures of Saitama, Chiba and Kanagawa has been extended until March 21. This raises worries about an additional blow that could be given to the restaurant and tourism industries during a period that is a high season in usual years, with cherry blossoms coming into full bloom and farewell and welcome parties being held at the turn of the fiscal year.
An internal affairs ministry report released Tuesday showed that the average consumption spending by households with two or more members in Japan fell 6.1% from a year before in January in real terms. Especially, expenditures on drinking and package tours tumbled some 90%.
Japan’s real GDP in October-December, which posted the double-digit increase, came to ¥541 trillion on an annualized basis, coming below the latest peak of ¥559 trillion posted in July-September 2019. The possible contraction in January-March could further delay a full-fledged recovery of the Japanese economy.
Highly contagious COVID-19 variants found in Japan and the pace of vaccinations in the country that lags behind those in the United States and Europe are also expected pose risks to the Japanese economy.
The health ministry said Wednesday that 345 people in 21 prefectures were found to have been infected with novel coronavirus variants first detected in Britain, Brazil and South Africa.
Based on data by Tuesday, the ministry said domestic testing found 271 people were infected with a variant, while 74 were discovered similarly infected by going through airport quarantine checks.
The Japanese government is concerned about the risk that variants may spread rapidly through the country and that currently available vaccines may be less effective against them, even as its vaccine roll-out started recently.
Shigeru Omi, head of the government’s COVID-19 subcommittee, warned that variants would become the dominant strain in Japan “sooner or later,” at a parliamentary committee session on Wednesday.
Daiwa Institute of Research Ltd. predicts that if infections with variant strains spread, and only up to a quarter of Japanese people get vaccinated by the end of fiscal 2021, a state of emergency would be declared three more times and the country’s real GDP for the fiscal year would shrink by 0.2%.
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