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Japan’s economic recovery remains fragile

posted onSeptember 8, 2021
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Japan's economy grew an annualized 1.9% in the second quarter of 2021, the Cabinet Office said on Wednesday (Sept. 8), beating economists' median forecast for a 1.6% gain and the initial estimate of a 1.3% expansion.

On a quarterly basis, the real gross domestic product (GDP), the total value of goods and services produced in the country adjusted for inflation,  improved by 0.5%, again exceeding expectations for 0.4%.

Household consumption -which accounts for more than half of the country's GDP- rose 0.9% (vs -1.3% in Q1) and fixed investment advanced 2.3% (vs -1.3% in Q1). Also, government consumption increased 1.3% (vs -1.7% in Q1), while public investment shrank 1.7% (vs -1.1% in Q1).

The upward revision was caused by stronger capital investment in such fields as digitalization, 
a government official told reporters.

However, net external demand contributed negatively to the GDP as exports expanded 2.8% and imports were up at a faster 5%. 

In a separate release, the Cabinet Office said the Economy Watchers Survey, a measure of the public assessment of the Japanese economy,  fell to a seven-month low in August and at the fastest pace since February 2020. The reading was 34.7 last month from 48.4 in July. The outlook index that signals future activity fell to 43.7 in August from 48.4 in the previous month. In June, the reading was 52.4.  A reading below 50 suggests pessimism.

 GDP growth was weaker in Japan than for some other nations

"Japan's recovery is lagging behind other advanced economies. As such, the economy's fully-fledged recovery needs to wait at least until early next year," Takeshi Minami, chief economist at Norinchukin Research Institute told Reuters. 

Looking forward, many analysts including Tomohiko Kozawa, a researcher at the Japan Research Institute, predict the country's economy to mark limited growth in the July-September period as the government issued a fourth state of emergency over  coronavirus for Tokyo in mid-July, which was later expanded to wider areas. 

The emergency now covers 21 out of Japan's 47 prefectures. Its current end date is set for next Sunday, but it will likely be put off by at least two week, Mainichi reported. 

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