Japanese economy recovers 5% in Q3

Japan’s economy expanded 5% in the third quarter of 2020. This is due to the rebound from Covid-19, which saw first-quarter growth in a year.

This number exceeded the consensus expectation of a 4.4% increase. But as a sign of the serious damage caused by the pandemic, Asia’s largest developed economies are still almost 6 percent smaller than they were a year ago.

Partial rebounds suggest that a complete recovery from a pandemic proves to be a protracted difficulty, especially if the recent increase in coronavirus cases has evolved into a larger wave. Japan recorded 1,722 new cases of Covid-19 on Saturday. This is the latest date the data was available, compared to 868 cases two weeks ago.

“The economy is steadily recovering, but the recovery is progressing,” said Yasutoshi Nishimura, economic minister. “People are still thinking defensively.”

The Japanese economy is growing at an annual rate of 21.4%, and the magnitude of its rebound is slightly weaker than in other developed countries. The United States has regained about two-thirds of production lost in the third quarter.

Masamichi Adachi, an economist at UBS in Tokyo, said Japan had more cases of Covid-19 in July, weakening consumer sentiment, but the outlook is bright for the rest of the year.

“I would like to emphasize that Japan’s recovery outlook for the fourth quarter is probably better than that of the United States or Europe,” he said. Throughout October, when many European countries had already returned to blockade, Japan’s Covid-19 cases were low.

Adachi said he hopes that the availability of coronavirus vaccines will allow Japan to avoid severe restrictions on economic activity, while the output gap leaves strong room for growth in 2021 and 2022. It was.

However, the pace of recovery depends on consumer and corporate sentiment. “Unlike the United States and Europe, it’s a shame that capital spending continues to decline in the third quarter,” Adachi said.

Japanese consumption rose 4.7% in the third quarter, boosting the recovery, while corporate investment fell another 3.4%. The decline in investment highlighted a bleak outlook for many companies affected by the disease, in addition to a 4.5% decline in the second quarter.

Japan’s economic downturn will accelerate discussions on the third supplementary budget this year. Prime Minister Yoshihide Suga has ordered a new spending package of 10 trillion yen ($ 95.5 billion).

The Japanese economy was already struggling before the Covid-19 hit, after being forced into recession by the consumption tax hike last fall.

With interest rates already at zero, the Bank of Japan bought more equity funds and flooded the banking sector with cheap loans in response to the recession.

The main answer comes from the government, which has launched various schemes, such as handouts of 100,000 yen per person nationwide.

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Japanese economy recovers 5% in Q3

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