Japan’s economy recorded another quarter of double-digit growth and ended the pandemic year in better shape than initially expected, signaling the potential for a safer recovery once a damaging state of emergency ends.
Gross domestic product grew 12.7% year-on-year in relation to the previous quarter in the three months to December, the Government Office reported on Monday. The result was better than 22 of the 24 forecasts of the economists surveyed and defied the winter wave of the coronavirus.
The fourth quarter’s expansion helped the economy survive the pandemic year with a 4.8% contraction, better than economists’ forecast and a lesser impact than the 5.7% drop in 2009 after the global financial crisis.
Increasing trade and gains in household spending continued to drive growth. The fourth quarter also saw companies increasing investments again, with corporate spending increasing at the fastest pace in more than five years.
More corporate spending, after six months of retreat, suggests that corporate Japan now sees better prospects ahead, once the country ends a state of emergency that should bring the economy back to a sharp contraction this quarter.
“It appears that corporate spending is finally running out as a result of the recovery in exports,” said economist Hiroaki Muto of Sumitomo Life Insurance Co. “The first quarter will fall again, but we are on a recovery trend.”
Monday’s report showed that on a quarterly basis Japan’s economy ended 2020 having recovered most of its lost production since last March, when the coronavirus rocked markets and froze global trade, a faster than expected recovery .
The average of 225 copies of Nikkeis rose 1.1%, rising briefly above 30,000 for the first time since 1990, after the growth report and as Prime Minister Yoshihide Suga confirmed that Japan’s vaccination campaign will begin on Wednesday .
Economy Minister Yasutoshi Nishimura said the results show the economy’s resilience, although the country is not yet out of danger. Consumer spending remains below average, he said, and exports may decline if the virus triggers further restrictions in Europe or other major markets.
The immediate outlook now depends on how long the state of emergency in Japan will last. The declining number of cases offers hope that restrictions may be lifted in some areas before March 7, the planned end date, but with the hospital capacity still stretched, that decision has not yet arrived.
On Monday morning, Suga said Japan will start giving injections to medical personnel this week, using the vaccine from Pfizer Inc., whose first batch arrived in Japan late last week.
“GDP shows that the economy can recover if the virus doesn’t stop things,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities Inc. “The pandemic didn’t break supply chains or production capacity like an earthquake and many families are ready to spend, given the low unemployment rate. ”
Government spending, Bank of Japan loan support, and a corporate and employee culture that traditionally put job security ahead of high wages helped to keep unemployment at just 2.9%, a fraction of US rates. and in parts of Europe.
Still, the payoff has been wage cuts that can limit the size of any revival of consumer spending after the emergency ends and the pent-up demand is exhausted, even if families are one floor below them.
“It would be better if wages improved and consumption increased, but we are not there yet,” said Muto, of Sumitomo Life.
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