Japan powers out of coronavirus dip with 3% fourth-quarter growth

Economic output in Japan grew 3 per cent from the third to the fourth quarter of 2020 as the country recorded a strong comeback from Covid-19.

The figure for growth in gross domestic product, published by the country’s Cabinet Office, came in well ahead of expectations for a 2.3 per cent expansion.

Solid growth in the final quarter of the year left output just 1 per cent below the same period in 2019, highlighting the speed of the bounce back from last year’s downturn, and suggesting a “V-shaped” recovery may be possible.

By contrast, Japan took several years to regain a similar level of GDP after the 2008-09 recession, showing how the dynamics of economic recovery differ when there is no financial crisis to overcome.

The figures reflect a period before Japan went back into a Covid-19 state of emergency in January, and output is likely to fall back again this quarter.

“The recovery is continuing, but we need to consider the impact of coronavirus infections and the state of emergency declaration,” said Katsunobu Kato, chief cabinet secretary. “Our economy is in a severe situation.”

Naohiko Baba, chief economist at Goldman Sachs in Tokyo, forecast a much smaller dip in the first quarter this year compared with last year because of lighter state of emergency restrictions, robust overseas demand and signs of a recovery in capital expenditure.

Whereas in last year’s state of emergency, schools were closed along with almost all shops and restaurants, this year schools have remained open and restaurants have been asked to close at 8pm.

The modest restrictions appear to have worked, with new Covid-19 cases in Japan falling from around 7,000 a day in early January, to less than 2,000 a day in recent weeks. The state of emergency in large cities remains in place.

Japan has also belatedly approved the Pfizer vaccine and expects to start inoculations with healthcare workers this week, giving renewed hope for a strong recovery this year, and boosting the chances of holding the Tokyo Olympics in the summer.

For 2020 as a whole, output fell by 4.8 per cent compared with the 5.7 per cent contraction in 2009 after the global financial crisis. That was worse than the 3.5 per cent fall in US output, but better than the 9.9 per cent fall in the UK, putting Japan in the middle of the table for economic impact from Covid-19.

Consumption rose by 2.2 per cent in the fourth quarter, business investment climbed 4.5 per cent and exports picked up 11.1 per cent.

At an annualised pace — the way Japan normally reports GDP — growth was 12.7 per cent in the fourth quarter but that figure has little meaning in the context of a rebound from coronavirus.

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