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Japan’s Growth Rebounds, but Virus-Related Weakness Looms

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The world’s third largest economy capped off a terrible year with a sharp rise in activity. Still, analysts say trouble lies ahead.

Consumer spending in Japan is expected to fall after a state of emergency was extended into March. Consumer spending in Japan is expected to fall after a state of emergency was extended into March.Credit…Carl Court/Getty Images

  • Feb. 14, 2021

TOKYO — Japan’s economy rebounded sharply in the last three months of 2020, government data showed Monday, extending its recovery from the coronavirus’s devastating impact in the first half of the year.

But the growth was fragile and could be easily disrupted, analysts warned, at least in the short term. A second state of emergency declared at the end of last year is likely to drag the economy down again, and — as with many countries — it will most likely take years for certain business sectors, such as tourism, and consumer confidence to recover.

Japan’s economy, the world’s third largest after the United States and China, grew 3 percent during the October to December period, for an annualized growth rate of 12.7 percent. It was the country’s second consecutive quarter of growth.

The economy had jumped 5.3 percent in the fiscal third quarter as the country emerged from a national emergency and regained a semblance of normalcy.

“The biggest drivers of this quarter’s growth were exports and consumer spending,” said Toshihiro Nagahama, senior economist at the Dai-Ichi Life Research Institute, as economies released pent-up demand for Japanese goods that had built up during the early months of the pandemic.

Japan’s growth last quarter was “a bit of a mechanical rebound from an unnatural sort of drop” created by global lockdowns and skittish consumers, said Izumi Devalier, the chief Japan economist at Bank of America Merrill Lynch.

But the surge in exports over the past months, driven by growth in capital goods and the tech sector, has “been incredible” she said.

The Japanese economy had entered 2020 in a weakened state brought about by a rise in the national consumption tax, a stark drop in trade with China and a devastating typhoon. The pandemic then struck a major blow. As other economies crashed, Japan’s shrank in its worst performance since 1955, when the country began using gross domestic product to measure its economy.

But thanks in large part to the country’s efforts to keep the pandemic under control, Japan avoided the worst of the economic damage that savaged the United States and much of Europe.

This fall, while many consumers in the West sheltered in place, people in Japan were traveling, eating out and going to movies. One film, “Demon Slayer: Mugen Train,” set a domestic box-office record, outpacing the former champion in a few short months. Government subsidies for travel lifted domestic tourism, although such travel may have also spread the virus.

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