Japanese economy shrinks less than experts estimated

Japan's economy contracted less than initially estimated in the first quarter, revised data showed, despite experts predicting a sharper drop because of the coronavirus outbreak.

The revised report by Japan's Cabinet Office on Monday, showed the country's GDP shrank an annualized 2.2 percent compared with the last quarter of 2019, a milder decline than the preliminary estimate of a 3.4 percent contraction.

According to the report, the revision mainly came from capital expenditure, which grew 1.9 percent in the January-March period, a significant rise from the preliminary estimate of a 0.5 percent drop. Meanwhile, investment based on long-term business plans in Japan like real estate has been solid, the report said.

However, despite the upward revision, Japan remains in an apparent recession, meaning its economy has shrunk for two straight quarters, with an even sharper drop expected in the April-June period.

"The upward revision in first-quarter GDP is cold comfort and many were casting doubt about its accuracy due to the unusually strong business investment readings," said Zhou Xuan, the chief consultant of Nomura Securities, in Tokyo.

Zhou said that although the Japanese government was trying to gradually revive economic activities, and had already lifted the state of emergency nationwide, a full rebound to pre-virus levels would not come any time soon.

"Japan's economy will likely to suffer more because it will take quite a long time for business to return to pre-COVID levels. Especially when the threat of another wave of infections lingers around," he added.

Zhou's estimate was echoed by a mid-May survey conducted by the Japan Center for Economic Research, in which 33 economists forecast that Japan's economy was expected to contract 21.3 percent over April-June.

Rebound expected

According to the GDP statistics released on Monday, household spending declined 0.8 percent in Japan and private residential investment was down 4.2 percent, due to stay-at-home and business closure requests that began in March.

To this, Takeshi Minami, the chief economist of Norinchukin Research Institute, said in an interview with Reuters that private consumption in Japan could return in the July-September period.

"Growth may rebound over July-September driven by private consumption. But capital expenditure could slow by then. We need to be mindful of the risk that economic activity could slump again if Japan is hit by a second wave of infections," Minami said.

The risk of a second wave of infections had been lingering since the country came out of its state of emergency, with Tokyo reporting at least 10 new cases almost every day.

Japan has been less affected by the virus compared with other advanced economies, with nearly 17,000 cases and around 900 deaths.