Expect Japan’s unemployment rate to fall to 2.7% in 2021: Capital Economics

Japan’s economy grew more-than-expected in the fourth quarter, continuing to recover from its worst post-war recession. This was facilitated by growing demand abroad, which boosted the country’s exports and capital expenditures..

However, compared to the fast pace of the third quarter, the recovery has sagged, and the new state of emergency and restrictive measures cloud its future prospects..

«Conditions are such that Japan will not be able to avoid negative growth in the first quarter. There is a high likelihood that the cycle of spread and containment of the coronavirus infection will repeat itself this year, which means that consumption is unlikely to recover at the expected pace.», – said Takumi Tsunoda, Senior Economist, Shinkin Central Bank Research.

The third largest economy in the world grew at an annualized rate of 12.7% in the fourth quarter, exceeding the market average growth forecast by 9.5%.

However, this is noticeably slower than the 22.7% increase in the previous quarter, when the economy took off due to the normalization of the Covid-19 situation..

Over the past year, Japan’s economy contracted 4.8%, the first annual decline since 2009.

At the same time, it should be noted that Japan’s performance over the last quarter of the year turned out to be stronger than growth in the US by 4% and a decline in the eurozone by 2.8%.. Analysts say that after two consecutive quarters of strong growth, Japan’s economy is likely to recover 90% of the losses caused by the pandemic..

«Japan’s recovery continued at a much faster pace than originally expected. It will still have to wait for full normalization, but economic activity is definitely growing at a good rate.», – said Yoshiki Sinke, Chief Economist at the Dai-Ichi Life Research Institute.

Stronger-than-expected Japanese GDP data emerged amid signs that the pandemic’s hit to other Asian economies late last year was not as severe as first thought..

Thailand’s GDP contracted less than forecast in the fourth quarter. The same can be said for Singapore..

Global Manufacturing Bounce Gives Japan’s Exports and Capital Spending a Much Needed Boost for Large-Scale Shipments to China.

Japan's economy is forecast to contract in the first quarter of 2021

In the fourth quarter, export growth was 11.1%.

Capital expenditures also rose 4.5%, the first increase in three quarters.

Private consumption, which accounts for more than half of the economy, grew 2.2%, slowing down from 5.1% growth in the previous quarter, but exceeding market growth forecasts by 1.8%.

However, the outlook remains highly uncertain as Japan lags behind Western countries in vaccine distribution..

Analysts expect the economy to contract in the current quarter as retailers hit by renewed restrictions imposed in January.

«If emergency measures are lifted in March, Japan’s economy is likely to recover in April-June.», – said Yusuke Shimoda, Senior Economist, Japan Research Institute.

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