The decline poses a challenge to Prime Minister Fumio Kishida who seeks to achieve growth and wealth distribution as part of his ‘new capitalism’ agenda, fueling fears of stagflation – a panorama of lukewarm growth and rising inflation .
According to gross domestic product (GDP) figures, the world’s third-largest economy contracted at an annualized rate of 1.0% in January-March from the previous quarter, a slower pace than the 1.8 contraction % expected by economists. This translated into a quarterly decline of 0.2%, according to Cabinet Office data, while market forecasts had forecast a fall of 0.4%.
Weak numbers could push Mr Kishida to roll out even more stimulus with upper house elections scheduled for July 10, after the 2.7 trillion yen ($20.86 billion) spending supplementary budgets compiled on Tuesday.
“The economy will return to growth in the coming quarters, but it won’t be a dramatic recovery, leaving room for further spending ahead of the election,” said Hiroshi Shiraishi, senior economist. at BNP Paribas Securities.
“The lockdown in China and U.S. rate hikes as well as the Ukraine crisis could weigh on external demand. Declines in real household and business income due to deteriorating terms of trade could hamper demand recovery interior.”
Private consumption, which accounts for more than half of the economy, fell slightly, compared with a 0.5% drop expected by economists, the data showed.
Many analysts expect the Japanese economy to rebound in the coming quarters, helped by the easing of coronavirus control measures.
However, doubts remain as to whether the recovery will be V-shaped, with soaring energy and food prices, aided by the weak yen, limiting consumption.
Japan’s export-dependent economy received little help from external demand, as net exports reduced GDP growth by 0.4 percentage points, slightly more than the negative contribution of 0.3 percentage points. percentage predicted by economists.
The weak yen and soaring global commodity prices boosted imports, crushing export gains.
Capital expenditure rose 0.5% against an expected rise of 0.7%, after rising 0.4% in the previous quarter.
“We expect GDP growth to disappoint for the full year 2022 due to the impact on household income from rising inflation and signs that older consumers remain wary at the thought of catching the virus,” wrote Tom Learmouth, Japan economist at Capital Economics, in a statement.
($1 = 129.4400 yen)