Japan’s economy is shrinking, but the outlook is brighter when the virus ebbs

Japan’s economy continued to falter in the third quarter of 2021, tipping back into contraction as the country struggled to find its economic foothold in the face of coronavirus restrictions and a supply chain crisis that hit the largest producers.

In the period July-September, the country’s economy, the third largest after the United States and China, shrank by an annual rate of 3 percent, government data showed on Monday. The result, a quarterly decline of 0.8 per cent, followed a slight increase in the previous three-month period, when economic output grew at a revised annual rate of 1[ads1].5 per cent, or a quarterly rate of 0.4 per cent.

But brighter days may be in store, at least in the short term.

Japan now has one of the highest vaccination rates among major nations, and it has lifted virtually all restrictions on the economy as the virus case has fallen in recent weeks to one of the lowest levels in the world.

Seventy-five percent of the country is fully vaccinated. And the number of cases of coronavirus has hovered in the low hundreds since mid-October, a decline of around 99 percent since the peak in August, which warns of the return of long-suppressed consumption.

To bolster the positive outlook, politicians, fresh after an election, are preparing a new round of incentives that will provide support to ailing businesses and put money in the hands of people across the country.

The payments are likely to be more efficient than before, which went straight into people’s savings accounts, said Wakaba Kobayashi, an economist at the Daiwa Institute of Research in Tokyo.

‚ÄúThis time, people are less limited; it has become OK to go out, “she said, adding that” under these conditions it is easier to promote consumption spending. “

Even before the pandemic, Japan, with its aging population and declining competitiveness, struggled to achieve economic growth. After a growth spurt in the second half of last year, the economy has been stuck in a cycle of expansion and contraction, which ebbs and flows with the virus’ waves.

While other major economies have come back to life behind loosened restrictions, Japan has seemed unable to recover from the virus-induced quagmire, the consequences of months spent struggling with the pandemic.

The country started the period July-September on the back foot due to a clumsy vaccine rollout that left it far behind its peers.

By midsummer, it was in the middle of its toughest battle against the virus to date. The Delta variant caused cases to rise just as Tokyo was preparing to start the Summer Olympics. Sponsors rolled back advertising campaigns, and tourists stayed home. The games, which were held without spectators, failed to deliver the financial promise that had been promised when the country was chosen as host.

As the virus spread, Japan entered a new state of emergency. Restaurants and bars closed early and travel dried up, with many people deciding to stay home instead of taking brave record-breaking figures.

At the same time, the semiconductor shortage hit the country’s car manufacturers, forcing many to cut production drastically. In September, the eight Japanese manufacturers made about half as many cars as they had at the same time the year before.

“There was a huge drop in production, and even though people wanted to buy cars, they could not,” Kobayashi said.

However, since the country ended its state of emergency last month, foot traffic has almost returned to prepandemic levels, said Tomohiko Kozawa, a researcher at the Japan Research Institute.

“There is a risk that infections may start to spread again, but at the moment the outlook is for improvement,” he said, adding that “we can expect high growth” in domestic consumption in the coming months.

The automotive industry is also expected to pick up again, he said, as chipmakers expand production and the pandemic ebbs in Southeast Asia, where the virus closed factories producing critical parts for Japanese vehicles.

“Exports should recover within the first three months of next year,” Kozawa said.

In the hope of getting the economy back on track, the government is expected to adopt its economic stimulus package in the coming days, which will provide cash distributions to families with children under 18, help small businesses and implement measures to compensate for increasing fuel. . prices, which have increased costs across a number of industries.

Nevertheless, other factors will continue to weigh on growth. The country is still closed to tourists – and difficult for many business people and students to enter – and it is unclear when the borders can reopen. Before the pandemic, many companies in Japan had relied on a steady stream of visitors from abroad.

While the country should be congratulated on the success of tackling the virus, it must articulate a vision for what comes next, said Daisuke Karakama, chief market economist at Mizuho Bank.

Although daily reported infections in Tokyo have dropped to low double digits, “there is no roadmap,” he said, and “no strategy.”

Source link

Back to top button