By Daniel Leussink and Tetsushi Kajimoto
TOKYO (Reuters) – Japan’s economy shrank for the first time in two quarters in the January-March period as Covid-19 restrictions hit the services sector and rising commodity prices created new pressures, raising concerns about a prolonged retraction.
The decline presents a challenge for Prime Minister Fumio Kishida to achieve growth and wealth distribution under his “new capitalism” agenda, fueling fears of stagflation – a mixture of tepid growth and rising inflation.
The world’s third-largest economy fell at an annualized rate of 1.0% in January-March, according to gross domestic product (GDP) figures, against a 1.8% contraction expected by economists.
That translated into a 0.2% quarterly decline, Cabinet Office data showed, versus the market’s forecast of a 0.4% drop.
The weak reading could pressure Kishida to take even more stimulus measures with the July 10 upper house election following the 2.7 trillion yen ($20.86 billion) in extra budget spending compiled on Tuesday. .
“The economy will resume growth in the coming quarters, but it will not be a dramatic recovery, leaving the possibility of additional spending open as the elections approach,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.
“The lockdown in China and interest rate hikes in the United States, as well as the crisis in Ukraine, could weigh on external demand. Declines in the real income of families and companies due to the worsening terms of trade may make it difficult to recover domestic demand”, he added.
Private consumption, which makes up more than half of the economy, was little changed, the data showed, better than a 0.5% drop expected by economists but below the upwardly revised 2.5% growth seen in the quarter ended. in December.
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