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Economy

Japan's GDP contracted 2.2% in 1st quarter, revised data shows

Positive capital expenditure trend puts a floor under apparent recession

Japanese consumers began returning to stores in late May, though many now wear masks whenever they go out in public.   © Reuters

TOKYO -- Japan's economy shrank 2.2% at an annualized pace in January-March, the government announced on Monday, a milder decline than the preliminary estimate of a 3.4% contraction.

Capital expenditure grew 1.9% at a quarterly pace, a significant upward revision from the preliminary estimate of a 0.5% drop. Investment based on long-term business plans like real estate development has been solid. However, market analysts forecast that capital expenditure will decline in the coming months as it usually follows the trend of corporate profits, which are plummeting.

Despite the upward revision, Japan remains in an apparent recession -- at least two consecutive quarters of negative growth -- for the first time since 2015. The government is mulling whether to officially declare the recession after further gathering and examining economic data.

The novel coronavirus began impacting the figures during the first quarter, when Japan's economy was already sluggish due to a consumption tax increase that took place in October, hitting the housing sector especially hard.

According to the GDP statistics released today, household spending declined 0.8%, the same as the preliminary estimate, and private residential investment was down 4.2%.

The outlook for the current quarter is gloomy due to stay-at-home and business closure requests that began in March.

According to a survey of 33 economists released in mid-May by the Japan Center for Economic Research, a Nikkei affiliate, Japan's economy is expected to contract 21.3% in April-June.

Japan lifted its seven-week-long state of emergency at the end of May, with many bars and restaurants reopening; however, customers and workers are not rushing to return to their favorite haunts.

Official statistics show roughly 6 million people were employed but not working in April, an all-time high. Companies are using cash on hand and employment subsidies to keep workers on their payrolls. But these efforts have not been enough to lift the sentiment of consumers as household spending took its biggest fall in 19 years in April.

Moreover, a risk of a second wave of infections remains. Since it came out of its state of emergency, Tokyo has been reporting at least 10 new cases almost every day. On Tuesday, when new daily infections climbed above 30, the Tokyo Metropolitan Government issued its first alert under a new warning system.

According to a Nikkei survey, the hard-hit tourism sector expects it to take between one to two years to reach precrisis levels.

As the economy takes on water, the government is resorting to bigger and bigger buckets to bail it out. Economic and fiscal policy chief Yasutoshi Nishimura, the minister in charge of the government's response to the coronavirus, on Thursday said a second supplementary budget approved by the government in May will boost annual GDP by 2%. Combined with other stimulus measures, the total impact is estimated at 6.4%.

At the end of April, the Bank of Japan decided to remove the upper limit on its purchases of government bonds from the financial market.

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