TOKYO (Reuters) -Japan’s economic system rebounded within the ultimate three months of 2021 as falling coronavirus circumstances helped prop up consumption, although rising uncooked materials prices and a spike in new Omicron variant infections cloud the outlook.
Financial institution of Japan Governor Haruhiko Kuroda additionally highlighted escalating tensions in Ukraine as a contemporary threat to the central financial institution’s forecast for a average financial restoration.
The world’s third-largest economic system expanded an annualised 5.4% in October-December after contracting a revised 2.7% within the earlier quarter, authorities information confirmed on Tuesday, falling wanting a median market forecast for a 5.8% achieve.
Some analysts anticipate the economic system to hunch once more within the present quarter as rising COVID-19 circumstances hold households from procuring and provide chain disruptions hit manufacturing facility output.
“The economic system will doubtless stall in January-March or it might even contract, relying on how the Omicron variant impacts service-sector consumption,” stated Takeshi Minami, chief economist at Norinchukin Analysis Institute.
Financial progress was pushed largely by a 2.7% quarter-on-quarter rise in non-public consumption, which accounts for greater than half of Japan’s gross home product (GDP).
The enlargement in client spending, which was larger than market forecasts for a 2.2% achieve, got here after Japan ended coronavirus curbs in October.
Capital expenditure additionally rose 0.4%, roughly in keeping with market forecasts. Exterior demand added 0.2% level to progress, an indication exports continued to profit from the worldwide restoration.
“Because the economic system re-opened, service consumption, corresponding to for lodges, eating places and leisure, acquired a giant enhance,” stated Wakaba Kobayashi, an economist at Daiwa Institute of Analysis.
Japan’s restoration, nevertheless, continues to lag different superior economies, forcing the BOJ to maintain financial coverage ultra-loose, at the same time as different central banks eye rate of interest hikes.
The nation’s seasonally-adjusted actual GDP, sized round 541 trillion yen ($4.69 trillion), stays under the pre-pandemic degree of late 2019.
A document spike in Omicron circumstances compelled the federal government to impose free curbs on most areas and hold borders closed, which doubtless dampened consumption for the reason that outset of this yr.
Rising infections have additionally compelled some producers to halt manufacturing, inflicting output disruptions and supply delays at auto giants corresponding to Toyota Motor Corp.
In the meantime, creeping import prices add dangers to Japan’s fragile restoration.
“Heightening tensions in Ukraine might have unfavourable results on world and Japanese progress in the event that they spark a surge in gasoline and commodity costs,” BOJ governor Kuroda advised parliament on Tuesday.
Hiroshi Shiraishi, senior economist at BNP Paribas Securities, expects financial progress to gradual to an annualised tempo of 1-1.5% in January-March, and even decline.
“The economic system’s restoration might delay into later this yr because the Ukraine disaster might drive up gasoline prices and dampen company urge for food for capital expenditure,” he stated.
“There’s not a lot left for the federal government and the central financial institution to do when it comes to new stimulus measures. Each fiscal and financial coverage have reached a restrict.”
($1 = 115.3900 yen)
Reporting by Leika Kihara and Daniel Leussink; Further reporting by Tetsushi Kajimoto and Kantaro Komiya; Enhancing by Sam Holmes