Japan’s Economy in the Last Quarter of 2020

It was a tough year for countries all over the world, and Japan is not an exception. The third-largest economy in the world was struggling to cope with challenges even before the coronavirus pandemic. However, the pandemic created additional problems and it would take time to deal with all of them.

Interestingly, Japan’s economy expanded more than expected in the fourth quarter of 2020. It extended the recovery from its worst postwar recession thanks to a rebound in overseas demand that boosted exports as well as capital spending.

It is worth noting that, the recovery slowed down from the third quarter’s active pace as well as the impact of a new state of emergency. As a result, policymakers have to prevent the spread of the virus, without choking off a fragile recovery, especially in the consumer sector.

People should take into account that, the situation is quite complex. Unfortunately, it will be very difficult to avoid negative growth in the first quarter.

Importantly, the country’s economy grew an annualized 12.7% in October-December according to the data released on Monday. Interestingly, this result surpassed expectations. However, it was slower than the revised 22.7% jump in the previous quarter. As a reminder, in the previous quarter, the economy benefited from pent-up demand after a previous state of emergency was lifted in May.

Economy and important data

As mentioned earlier, it was not an easy year even for the developed countries. For example, Japan’s economy contracted by 4.8% in 2020. It is the first annual fall since 2009.

Interestingly, Japan’s October-December performance was stronger than U.S. growth of 4% as well as a 2.8% slump in the eurozone. People should keep in mind that, the country’s economy likely recouped 90% of pandemic-induced losses.

It is worth noting that, Japan’s stronger-than-expected GDP (gross domestic product) data comes amid signs the pandemic’s impact on other Asian economics toward the end of last year was not as severe as first feared. For instance, Thailand’s GDP shrank less than expected in the fourth quarter.

Importantly, a global rebound in manufacturing gave Japan’s exports as well as capital expenditure a much-needed boost on strong shipments to a rapidly recovering Chinese economy.

However, there are risk factors as well. The outlook remains highly uncertain as Japan lags behind western countries when it comes to rolling out vaccines. It is not surprising that analysts expect the economy to contract in the current quarter. Nevertheless, the country has the potential to overcome all challenges in the long run.