Japan GDP Annual Rate -5.1%... Worse Than During Lehman Shock (Comprehensive)

1.3% Decrease in Q1
Annualized Rate -5.1%

[Asia Economy Reporter Kwon Jae-hee] Japan's GDP in the first quarter of this year showed negative growth for the first time in three quarters. The recent spread of the fourth wave of COVID-19 in Japan, along with the surge of variant viruses, led to the declaration of a state of emergency, which is believed to have adversely affected the economy. This is expected to put a brake on the Suga Cabinet's plan to achieve economic recovery through the Tokyo Olympics and Paralympics.

According to Bloomberg on the 18th, Japan's Cabinet Office announced that the real GDP (flash estimate) for the first quarter of 2021 decreased by 1.3% compared to the previous quarter. The annualized rate, assuming this trend continues for a year, is -5.1%. This is lower than economists' forecast of -4.5% and represents a larger decline than during the 2008 Lehman crisis (-3.6%).

This marks the first negative growth in three quarters since COVID-19 began spreading in earnest in Japan in April last year. The negative growth in the first quarter of this year is attributed to the government's declaration of a state of emergency in metropolitan areas such as Tokyo and Osaka due to the resurgence of COVID-19, which dampened personal consumption.

According to the Nihon Keizai Shimbun, personal consumption, which accounts for more than half of GDP, decreased by 1.4% compared to the previous quarter, marking the first decline in three quarters. The state of emergency led to restrictions on unnecessary outings and shortened business hours for restaurants, which appears to have suppressed consumption.

Along with consumption, capital investment, a pillar of domestic demand, decreased by 1.4%, turning negative for the first time in two quarters. Notably, declines were prominent in telecommunications equipment and key items such as automobiles. Housing investment increased by 1.1%, expanding from 0.1% in the previous quarter, while public investment decreased by 1.1%.

However, production and exports are recovering. The industrial production index, which reflects corporate production activities, fell to 77.2 in May last year but rose to 97.7 in March this year as automobile production increased, nearly recovering to pre-COVID-19 levels. With an increase in automobile exports, export value also exceeded 7 trillion yen in March this year for the first time in two years.