- Economic activity contracted sharply as a result of emergency restrictions imposed on movement
- With restrictions now mostly lifted, Japan should see a solid bounce-back in the fourth quarter
Economic activity in Japan contracted sharply in the third quarter due to pandemic-induced movement emergency restrictions, according to new data from ING Economics.
“Like many other countries in Asia, Japan’s latest GDP data demonstrate that Covid is still exerting a strong influence on the economy. Economic activity contracted sharply in 3Q21 as a result of emergency restrictions imposed on movement. These measures are now mostly lifted, and 4Q21 should bounce back,” the report from ING’s economic and financial research department said.
Overall GDP declined by 0.8% quarter-on-quarter, dragged down by a 1.1% quarter-on-quarter contraction in consumer spending and a 3.8% contraction in non-residential business investment. Residential also showed a decline of 2.6% from the previous quarter. Government consumer spending provided a small boost to growth, but government investment was also affected by the emergency restrictions.
Despite dismal domestic demand, imports rose more than 5% quarter-on-quarter, though some of that fed into inventories, which provides about a 0.3 percentage point boost to the quarterly growth rate. Net exports had no impact on the overall growth figure.
“The only good thing you can say about the 3Q21 figures is that we know exactly where they came from—and the emergency restrictions that led to the contraction have now mostly been lifted, which should allow for a solid bounce back in 4Q21,” ING Economics said.
There is also some fiscal stimulus in the pipeline, including COVID-19 relief spending, business support, childcare and education vouchers as well as cash handouts, which although it will probably not come in time to lift fourth quarter GDP, could provide some support to the 2022 growth profile.
ING Economics forecasts Japan’s GDP to grow at 1.8% this year and 1.7% for 2022.
