Page Nav

HIDE

Gradient Skin

Gradient_Skin

Responsive Ad

The COVID shock gives Japan's economy a small boost, but the global outlook gets worse

Image: Reuters Berita 24 English - Japan's economy came back from a COVID -caused slump at a slower rate than expected in the second qua...


Image: Reuters

Berita 24 English - Japan's economy came back from a COVID-caused slump at a slower rate than expected in the second quarter, according to data released on Monday. This shows how uncertain it is about whether consumption will grow enough to support a slow, fragile recovery.


Japan, like many other economies, has had trouble getting back on its feet because of the war in Ukraine and the rising prices of commodities, even though rising consumption helped growth in April-June.



"In July through September, growth will still be driven by consumption and spending on capital. But the momentum may not be that strong because rising prices are making people spend less "The head economist at Itochu Economic Research Institute, Atsushi Takeda, said this.



"Japan's recovery could slow down, even if domestic demand keeps growing, if exports keep going down," he said.



In fact, Japan's outlook has been clouded by a rise in COVID infections, a slowdown in global growth, supply problems, and rising raw material prices that are making it more expensive for households to live.



The world's third-largest economy grew by 2.2% on an annualized basis from April to June, according to government data. This was the third straight quarter that the economy grew, but it was less than the median market prediction of a 2.5% increase.



It came after a revised 0.1% rise in the gross domestic product (GDP) from January to March, when spending was hurt by a rise in COVID cases.



Most of the growth came from a 1.1% rise in private consumption, as restaurants and hotels saw business pick up after restrictions put in place because of the pandemic were lifted.



The data showed that capital spending was another big reason for growth from April to June. It went up 1.4% from the previous quarter, which was more than the 0.9% growth that the market had expected.



But the rise in consumption in the second quarter was less than what the market had predicted, which was a rise of 1.3%. This makes it less likely that the rise in household spending will continue.



EXTERNAL RISKS



Some analysts say that the return of COVID infections and recent price increases for a wide range of everyday goods could make people less likely to spend money on fun things like going out to eat and going to the movies.



When adjusted for inflation, wage earners' pay fell 0.9% from the previous quarter to April-June. This was a bigger drop than the 0.1% drop in January-March, which showed that rising living costs were already cutting into household income.



Growing worries about a global slowdown, which are partly caused by a wave of monetary tightening by major central banks, have also made it harder for Japan's economy to keep growing.



From April to June, domestic demand added 0.5% point to GDP, but external demand didn't add to or take away from growth. This is a sign that the once-strong export sector is losing strength.



"If the number of COVID cases keeps going up, it could hurt domestic demand in the future. As worries about a recession in the U.S. and Europe grow, external risks are also more likely to go bad "An economist at Daiwa Securities named Toru Suehiro said this.



Prime Minister Fumio Kishida told his ministers on Monday to come up with more ways to slow the rate at which fuel and food prices are going up. He wanted to soften the blow to the economy from rising living costs.



Japan has been slower than other major economies to fully recover from the effects of the pandemic. This is partly because of weak consumer spending, which was caused in part by activity restrictions that lasted until March.



Because of this, the Bank of Japan (BOJ) is an outlier in the global tightening of money that many economies are going through because inflation is rising.



Policymakers hope that pent-up demand will keep people spending until wages go up enough to keep up with rising costs of living. Analysts say it is unclear, though, if companies will raise wages as the risk of a drop in global demand grows.



The BOJ has said it will keep its ultra-loose monetary policy even though inflation has been higher than its 2% target for three months in a row. This is to make sure that the economy has a steady recovery that is driven by strong consumer spending and wage growth.

Reponsive Ads