After experiencing a difficult Q1 this year, Japan’s economy rebounds with 1.3% annualised growth in Q2. With the impact of the Delta Covid-19 variant, experts are hesitant to stay hopeful.
Japan’s Q2 gross domestic product (GDP) rose faster than expected after undergoing a 3.7% drop in Q1 of this year. The country’s economy grew at an annualised rate of 1.3% in Q2 (April to June) 2021, surpassing a median market forecast of only a 0.7% gain.
Many experts however, do not expect further drastic increases in growth for Q3, as the country imposed a state of emergency to curb further spread of Covid-19, as the Delta variant continues to run rampant worldwide, this in turn negatively affecting household spending.
“There’s not much to be optimistic on the outlook with a spike in infections heightening the chance of stricter curbs on activity,” said Yoshihiki Shinke, Chief Economist at Dai-ichi Life Research Institute, “Japan’s economy stagnated in the first half of this year and there’s a risk of a contraction in July-September. Any clear rebound in growth will have to wait until year-end,” he continued.
The rebound is still behind that of other countries, including the U.S., which experienced 6.5% annualised growth in Q2.
Consumption in Japan, however, unexpectedly rose 0.8% in Q2, in contrast with a 1% drop in the year’s first quarter, despite struggles with the ongoing pandemic. Capital expenditure also experienced 1.7% growth after a 1.3% drop in Q1. Furthermore, exports rose 2.9% in Q2, demonstrating the importance of international trade for Japan.
“Private consumption grew unexpectedly and capital expenditure turned out to be firm. That said, the data left the impression that the economy’s rebound from the first quarter slump was weak,” said Takeshi Minami, Chief Economist at Norinchukin Research Institute.
Overall, this is still a positive sign for Japan, and a comeback from Covid-19’s initial hit to the economy last year, but with the Delta variant spreading widely in Asia, Japanese manufacturers are experiencing supply chain disruptions. With exports being fundamental for Japan’s Q2 recovery, further production delays could significantly affect the country’s economy for the remainder of the year. Impacts of the Tokyo 2020 Olympic Games on the country’s GDP for Q3 should also be taken into consideration.