A sharp contraction in capital expenditure, stock piling of raw materials, ready goods by firms led to slower growth.
Japan’s economy expanded at a slower-than-initially-reported pace in the last three months of 2020, with firms tightening spending on plants and equipment and sharply cutting inventories as the coronavirus pandemic hit demand.
The economy grew an annualised 11.7 percent in the fourth quarter of last year, weaker than the preliminary reading of 12.7 percent annualised growth, Cabinet Office data showed on Tuesday.
The slower growth was mainly due to a sharper contraction in private inventories and capital expenditure expanding less than previously thought in the fourth quarter, even as exports remained solid.
Separate data showed household spending was hit by a bigger annual drop in January than in the prior month, a sign that people remained cautious about shopping amid the COVID-19 pandemic.
The revised reading was weaker than economists’ median forecast for a 12.8 percent gain and translates into a real quarter-on-quarter expansion of 2.8 percent from October-December, compared with a preliminary 3 percent gain.
Capital spending grew 4.3 percent from the previous quarter, lower than the government’s preliminary estimate of a 4.5-percent rise but outpacing the median forecast by analysts of a 4.1 percent increase.
Private inventories, including raw materials and manufactured products, subtracted 0.6 of a percentage point from the revised gross domestic product (GDP) growth figure, worse than a negative preliminary contribution of 0.4 of a percentage point.
‘Ups and downs’
The start of Japan’s mass vaccination programme has raised hopes for an end to the pandemic but the release has been slow and it remains early days yet.
“Although vaccination started in Japan, it will take time to yield its impact, so the economy is forecast to go through some ups and downs,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “We expect the economy will pick up from the second quarter but it will be difficult to regain soon what it will lose in the first quarter.”
Private consumption, which accounts for more than half of GDP, rose 2.2 percent from the previous three months, matching the preliminary reading.
Net exports – or exports minus imports – added 1.1 percentage point to revised gross domestic product (GDP) growth, while domestic demand lifted it by 1.8 percentage point, weaker than a preliminary contribution of 2 percentage points.
The worse-than-expected GDP revision comes after exports and factory output picked up in January, signalling a stronger recovery in global demand following last year’s deep coronavirus slump.
Household spending, however, fell 6.1 percent in January compared with the same month a year earlier, official data showed on Tuesday, worse than the 2.1 percent drop expected by economists in a Reuters poll.
Some analysts are worried that cooling corporate investment and household spending could last longer than expected, boding ill for demand and threatening to leave the world’s third-largest economy without a domestic growth driver.
The Bank of Japan will conduct a review of its policy tools next week to make them more “effective and sustainable” as the pandemic forces it to keep its radical stimulus programme in place longer than originally expected.