Japan economy to suffer Q1 slump on lower consumption

The weak reading will underscore the challenge policymakers face in pulling the world’s third-largest economy sustainably out of the pandemic-induced doldrums.

While the economy is likely to rebound in the current quarter, the outlook remains clouded by Russia’s attacks in Ukraine that has led to a surge in commodity and fuel costs.

Gross domestic product (GDP) likely shrank an annualized 1.8 percent in the January-March period after a 4.6 percent expansion in the previous quarter, according to analysts polled by Reuters. That would translate into a quarterly 0.4 percent contraction.

“A big drop in consumption was mainly behind the contraction in January-March GDP, due largely to the outbreak of the Omicron variant,” said Saisuke Sakai, senior economist at Mizuho Research and Technologies.

“The recovery will remain moderate due to Japan’s worsening terms of trade blamed on the Ukraine crisis and slowing global growth,” he said.

Private consumption, which accounts for more than half of GDP, likely fell 0.5 percent, largely because of the Omicron outbreak that forced the government to impose curbs on activity.

External demand, or exports minus imports, likely knocked 0.3 percentage point off GDP growth, reflecting weak exports.

Capital spending is expected to have risen 0.7 percent after a 0.3 percent increase in the previous quarter, according to the poll.

Cabinet Office is expected to release the January-March GDP data at 8:50 a.m. on May 18 (2350 GMT May 17).