Japan’s GDP contraction and rising costs raise fears of further recession

Written by Daniel Losink and Tetsushi Kajimoto

Tokyo Japan’s economy contracted for the first time in two quarters in the January-March period due to restrictions Corona virus disease19 – It affected the services sector and the rise in the prices of raw materials created new pressures, which raised fears of a long-term recession.

The decline poses a challenge to Prime Minister Fumio Kishida’s pursuit of growth and wealth distribution under his “new capitalist” agenda, which has raised fears of stagflation, a combination of weak growth and high inflation.

GDP figures showed the world’s third-largest economy contracted at an annualized rate of 1.0% in January-March compared to the previous quarter (Gross domestic product), below the 1.8% contraction economists had expected. That translates to a 0.2% quarterly drop, according to Japan’s Cabinet Office data, versus market expectations for a 0.4% drop.

The weak number may pressure Kishida to unleash more stimulus as the Senate election (July 10) approaches, after 2.7 trillion yen ($20.86 billion) in additional budget spending approved on Tuesday.

Hiroshi Shirashi, an economist at BNP Paribas Securities Brokerage.

“The shutdown in China and interest rate hikes in the United States, as well as the crisis in Ukraine, could affect external demand. A decrease in real incomes of households and businesses due to deteriorating business conditions may impede the recovery of domestic demand.”

Private consumption, which accounts for more than half the economy, barely changed, according to published data, above the 0.5% decline economists had expected, but below the 2.5% growth in the December quarter.

Many analysts expect the Japanese economy to rebound in the coming quarters, aided by the easing of coronavirus restrictions.

However, questions remain about whether the recovery will be V-shaped, as rising energy and food prices have curbed consumption.