Japan's economy recovers in Q2, however, Covid is a threat

Japan’s economy rebounded more than expected in the second quarter after contracting in the first three months of the year, data showed, in a sign that consumption and capital spending are improving after the initial impact of the coronavirus pandemic.

Analysts predict that household spending will slow down in the current quarter due to the tightening of emergency measures that were reintroduced in response to a spike in infection rates.

After a 3.7% drop in the first quarter, the third-largest economy in the world saw an annualized 1.3% growth in April and June.

The market expected an increase of 0.7%, but the result was better than it actually was.

Yoshihiko Shinke (chief economist, Dai-ichi Life Research Institute) stated that “there’s not much to cheer about in the scenario with an increase in infections increasing the possibility of tighter restrictions for activity.”

“Japan’s economy has been stagnant in the first half this year, and there is a possibility of contraction between July-September.” He said that any resumption of growth must wait until the end.

The second quarter saw consumption rise 0.8% compared with the prior period. This was against the expectations of a 0.1% decrease and recovering from the 0.1% fall between January and March.

After a 1.3% drop in the prior quarter, capital expenditures increased by 1.7%. Domestic demand was a contributing factor to GDP growth by 0.6 points.

The world’s third-largest economy is seeing an increase in exports of 2.9% between April-June, a sign of the global recovery.