18 May 2022, 10:03

Japan 1st-quarter GDP shrank as Omicron wave hit

TOKYO, May 18, 2022 (BSS/AFP) - Japan's economy shrank slightly in the first
quarter of 2022, official data showed Wednesday, hit by Covid-19 restrictions
and higher prices.

The world's third-largest economy shrank 0.2 percent quarter-on-quarter in
the January-March period, slightly less than the market expectations of a 0.4
percent contraction.

It followed a modest rebound in the final three months of 2021 that proved
short-lived after Japan put Covid restrictions in place as an outbreak
fuelled by the Omicron coronavirus variant took hold in January.

Growth was also hit by the rising cost of imports with energy prices surging
and the yen falling to its lowest level against the dollar in 20 years.

Economists expect the economy to recover again in the April-June quarter now
that virus restrictions have been lifted, but caution there are some caveats.

"We see three headwinds to this expected recovery," said UBS economists
Masamichi Adachi and Go Kurihara in a note ahead of the GDP data release.

"First is a rise in food and energy prices. Second is a drag from the
lockdown in China," and third is the risk of a potential resurgence in virus
infections, they said.

Others point to ongoing uncertainties linked to "tensions in international
relations and military conflicts", according to a survey among economists
conducted by the Japan Center for Economic Research.

During the current earnings season, major Japanese firms such as Sony and
Nissan have offered cautious forecasts because of the uncertainty,
particularly over supply chain disruption and the effect of Covid lockdowns
in China.

Wednesday's data showed the economy's rebound in the last quarter of 2021 was
0.9 percent, slightly weaker than an initial estimate of 1.1 percent growth.

- Rising prices -

Japan is battling a series of economic headwinds linked to the pandemic and
Russia's invasion of Ukraine, which has sent energy costs soaring.

The yen has also slumped against the dollar, with a widening gap between
Japan's ultra-loose monetary policy and tightening in the United States as
the Federal Reserve attempts to combat inflation.

Rising energy prices and other hikes are squeezing Japanese consumers and
businesses, with household spending dipping 2.3 percent in March from a year

Analysts have warned that the pace of nominal wage increases in Japan is
unlikely to track rising prices, dampening spending appetites.

Last month, the government unveiled a 6.2 trillion yen (around $48 billion)
economic package that included handouts for low-income families to help
cushion the impact of rising prices and energy costs.

Looking ahead, "net trade will boost growth over the coming months as supply
shortages ease and the weak yen boosts exports and softens demand for
imports," Tom Learmouth, Capital Economics economist, said in a note.

"With coronavirus cases continuing to fall and nearly 60 percent of the
population triple-jabbed, another round of restrictions looks unlikely for

"However, we expect GDP growth to disappoint across 2022 due to the hit to
household income from higher inflation and signs that elderly consumers
remain wary of catching the virus," he added.

Japan has seen a smaller Covid outbreak than many countries, although cases
surged because of the highly transmissible Omicron variant.

The country has recorded around 30,050 deaths despite avoiding harsh


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