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The preliminary quarterly estimate of real gross domestic product for January-March 2022 indicated an annualized 1.0% decrease from the previous quarter, slipping back into negative growth for the first time in two quarters since July-September 2021.
There are many risk factors, such as rising prices and uncertainties about the future of overseas economies. The government needs to make efforts to vitalize consumption by thoroughly implementing measures to prevent the spread of the coronavirus pandemic and by reducing people’s anxieties about the future.
The latest quarterly GDP decline was mainly due to the fact that imports grew 3.4% from the previous quarter for reasons such as an increase in shipments of coronavirus vaccines and medication. This caused the value of imports to exceed the value of exports.
Net exports, found by deducting the value of the nation’s imports from the value of its exports, are used in calculating GDP figures. So, the import increase pushed down the GDP figures this time.
Personal consumption, which accounts for more than half of Japan’s GDP, remained almost flat from the previous quarter due to sluggish demand at accommodations and dining establishments amid the rapid spread of the omicron variant of the coronavirus.
In late March, quasi-emergency priority measures to prevent the spread of the virus were lifted in Tokyo and other prefectures. During the Golden Week holiday period from late April to early May, tourist spots and shopping and entertainment areas were crowded with people. The central government revised its economic assessment upward for the first time in four months in its monthly economic report for April, citing a pickup in personal consumption as the reason.
To achieve a self-sustaining economic recovery led by domestic demand, it is necessary to steadily boost personal consumption.
To that end, it is important to bring the pandemic under control as early as possible. It is hoped that the government will strengthen coronavirus control measures such as by promoting vaccinations mainly for young people who have not yet received booster shots, and will lead such efforts toward the normalization of economic activities.
It is also vital to keep paying attention to future risks. China, which has adopted a zero-COVID policy, has put Shanghai and other cities under lockdown, dealing a serious blow to the supply chains of the manufacturing industry, among others.
With the crisis in Ukraine accelerating the rise in prices of fuel and raw materials, the domestic corporate goods price index, which measures the prices of goods traded between companies, rose 10.0% in April from a year earlier. This could lead to higher costs for companies and lower performance even for firms with strong earnings.
In addition to gasoline, price hikes are spreading to familiar products such as food. There are concerns that rising prices of daily necessities will cool consumption.
On the other hand, personal savings reportedly continue to rise. This may be mainly due to uncertainty about the future of the pandemic and sluggish wage growth amid rising prices. Also, there is deep-rooted concern among the public about the social security system.
To shift funds from savings to consumption, it is important to strengthen measures to encourage companies to raise wages steadily. The government also should make efforts for expenditure reforms to curb ballooning social security spending.
