Japan's economy contracts more than expected as Covid-19 hits consumption

[TOKYO] Japan's economy shrank more than expected in the first quarter as slow vaccine rollouts and a resurgence in Covid-19 infections hit consumption, reinforcing expectations the country will lag major trading partners in emerging from the pandemic.

Extended state of emergency curbs are likely to keep any recovery in the current quarter modest, analysts say, adding to challenges for policymakers seeking to pull Japan out of the doldrums.

The world's third-largest economy shrank an annualised 5.1 per cent in the first quarter, more than a median market forecast for a 4.6 per cent contraction, government data showed on Tuesday.

The decline followed an 11.6 per cent jump in the previous period and marked the first contraction in three quarters.

Private consumption, which makes up more than half of the economy, fell 1.4 per cent, less than a median market forecast for a 2.0 per cent drop, the data showed.

Capital expenditure also slipped 1.4 per cent, confounding market expectations for a 1.1 per cent increase.

Exports grew 2.3 per cent thanks to a rebound in global demand for cars and electronics. Still, net exports shaved 0.2 per cent point off GDP, the data showed.

Japan's economy expanded for two straight quarters after its worst postwar slump in April-June last year due to the initial hit from the pandemic.

The export-driven recovery came to a standstill as consumption took a hit from a spike in new virus strains that forced the government to re-impose curbs just 10 weeks before the Tokyo Olympic Games.

REUTERS