Japan is coming out of recession amid a post-pandemic consumer boom

Japan’s economy emerged from recession and grew faster than expected in the first quarter as the recovery in consumption after the COVID-19 pandemic offset global headwinds. This is reported by Reuters.

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At the same time, growing signs of slowing growth in the US, Europe and China are clouding the outlook for the export-dependent economy, heightening uncertainty about how soon the central bank will be able to wind down its massive stimulus program.

“Consumption will continue to support growth as the lifting of restrictions related to COVID will contribute to an increase in spending on tourism and the services sector,” noted Dai-ichi Life Research Institute Chief Economist Yoshiki Shinke.

According to him, the economic recovery will be moderate, since weak demand on foreign markets will put pressure on exports.

“It will be a tug-of-war between strong domestic demand and lifeless exports,” he added.

The growth of Japan’s economy

The world’s third largest economy grew by 1.6% year-on-year in January-March, according to government data published on Wednesday, which significantly exceeded market forecasts by 0.7% and was the first growth in three quarters.

The increase occurred after a 0.1% drop in the last quarter of 2022. The decrease marked two quarters of contraction in a row, which corresponds to the definition of a technical recession.

Read also: In the next 5 years, the world economy will grow at the worst rate since 1990 — IMF

Private consumption, which accounts for more than half of the economy, grew by 0.6% in January-March compared to the previous quarter, as the country’s post-pandemic recovery boosted spending on services. This exceeded forecasts for growth by 0.4%.

Capital expenditure also surprised, increasing by 0.9%, which exceeded forecasts for a drop of 0.4%.

Japan’s nominal gross domestic product (GDP) reached a record ¥570.1 trillion ($4.22 trillion), partly driven by rising prices, Economy Minister Shigeyuki Goto said.

However, Goto said that due to the new risks, it is necessary to be cautious.

“We must carefully monitor the world economy, as well as the influence of financial markets and the growth of interest rates on the real economy,” he said.

The strength of domestic demand compensated for the weakness of exports, which fell by 4.2% in January-March, which was the first decline in six quarters.

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Source: Ministry of Finance

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