Japan’s economy grew slower than expected

Japan’s economy grew at a slower-than-initially-reported pace in October-December, with firms tightening spending on plant and equipment as the COVID-19 pandemic clouded their business plans.

The slower growth was mainly caused by a sharper contraction in private inventories and capital expenditure expanding less than estimated in Q4, even as exports remained solid.

According to data, household spending was hit by a much bigger annual decline in January than in the previous month. A sign the coronavirus pandemic was keeping consumers cautious about shopping.

Furthermore, the economy rose an annualized 11.7% in October-December, weaker than the preliminary reading of 12.7% annualized growth to mark the second straight quarter of growth.

Capital spending rose by 4.3% from the previous quarter, lower than a preliminary 4.5% increase but outpacing the median forecast for a 4.1% gain.

Moreover, private inventories, including raw materials and manufactured products, decreased 0.6% point from revised gross domestic product growth (GDP), which was more than a negative preliminary contribution of 0.4% point.

According to the chief economist at Dai-ichi Life Research Institute, even though vaccination began in Japan, it will take time to yields its impact, so the economy is forecast to go some ups and downs.

He added that the economy is likely to pick up from the second quarter. However, it will be challenging to regain soon what it will lose in the first quarter.

Household spending dipped 6.1% in January, while 2.1% decline was expected

Meanwhile, private consumption, which accounts for over half of GDP, increased 2.2% from the prior three months.

Furthermore, net exports (exports minus imports) gained 1.1 percentage point to revised GDP growth, while domestic demand raised it by 1.8 percentage point, lower than a preliminary contribution of 2.0 percentage point.

Household spending dropped by 6.1% in January compared with the same month a year earlier, worse than the 2.1% decline expected by economists.

Moreover, real wages fell for the 11th straight month in January as the pandemic continued to pressure corporate profits.

Some analysts are worried that a cold spell in corporate investment and household spending could last longer than anticipated, threatening to leave the world’s third-largest economy without a domestic growth driver.