TOKYO -- Japan's economy declined 1.3% in January-March from the preceding three-month period, or an annualized pace of decline of 5.1%, as resurgent COVID outbreaks snapped the run of consecutive growth after two quarters, the Cabinet Office said Tuesday.
The result compares with an average forecast of a 1.2% contraction, or an annualized decline of 4.6%, in a survey of 37 economists by the Japan Center for Economic Research.
The setback was blamed on the government's declaration of a second state of emergency, for a period between Jan. 8 and March 21, urging people to refrain from dining out at night and traveling across prefectural borders and also to work from home as much as possible. Such restrictions are believed to have put the brakes on personal spending on travel and dining.
Private consumption fell 1.4% from the previous quarter. Services such as dining dropped 2.6%, semi-durable goods like apparel fell 3.0%, and durables like appliances declined 3.1%.
The state of emergency was not the only cause for slow consumption. Weaker winter bonuses were also to blame, said Toru Suehiro, senior economist at Daiwa Securities. According to a Nikkei survey, winter bonuses fell 8.5% on year, the biggest decline since a 14.9% fall in 2009, the year after the Lehman crisis.
During January-March, government consumption also fell from high levels in the latter half of 2020, during which government consumption had been kept elevated by the "Go To" travel campaign. The travel subsidy program was halted before the year-end holiday season amid new coronavirus outbreaks.
Japan imposed a third state of emergency on April 25 as new COVID variants spread across the country, especially outside Tokyo, prompting some economists to predict another contraction in April-June. Economists on average expect the economy to rebound 0.5%, or an annualized pace of 1.8%, in April-June, according to a JCER survey.
How strong the rebound will be in April-June depends on whether the state of emergency will lift at the end of May, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. The number of new infections has shown signs of decline in Tokyo and Osaka. Kumano expects a rebound but adds, "It's hard to expect a sharp turnaround."
Differences in pandemic situations and vaccine rollout paces led to divergent economic performances among regions in the first quarter. Japan has struggled to roll out vaccines due partly to a limited supply, but also due to a shortage of medical workers administering shots.
The U.S. expanded at an annualized pace of 6.4% in January-March from the previous quarter, while China grew at a pace of 2.4%, according to an estimate by the Cabinet Office. Meanwhile, the Eurozone economy contracted at a rate of 2.5%.
The export-oriented manufacturing industry has been a bright spot in the economy. Strong global demand for semiconductors, for instance, has kept output and investment at high levels in Japan's machinery sector, said Daiwa's Suehiro. Japan is a key supplier of chipmaking equipment to South Korea, Taiwan and China.
But the strong manufacturing figures could not offset weaknesses in the non-manufacturing sectors, such as the retail, restaurant and hotel sectors, as well as in overall private consumption, Dai-ichi's Kumano said. In the first quarter, non-residential investment dropped 1.4% after an increase of 4.3% in October-December.
"As long as the U.S. economy remains on a solid footing, the Japanese economy is likely to sustain its positive momentum," said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute. But he added that differences in the pace of vaccine rollout will continue to have a "not insignificant" impact on the pace of recovery.