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Japan’s economy shrinks beyond expectations as it deals with COVID-19

Japan’s economy shrinks beyond expectations as it deals with COVID-19

Japan's economy has reportedly shrunk farther than expected in the third financial quarter of the year, as a jump in Covid-19 cases slowed spending and supply chain problems adversely affected business.

According to reports, the world's third-largest economy supposedly shrank by 0.8% q-o-q, far more than the 0.2% economists had earlier predicted.

A 1.2% drop in household consumption, which coincided with the imposition of a state of emergency relating to the coronavirus over the summer, a time where the nation saw its worst-yet surge, was responsible for the contraction.

Meanwhile, a reduction in non-residential investment, which fell 3.8% due to a semiconductor shortage as well as supply chain problems that slowed industry productivity, also weighed significantly.

Exports, another important factor driving Japan's economy, were down as well, with car exports halting due to a lack of semiconductor components. However, imports of goods and services also fell, resulting in a tiny net trade positive for GDP growth.

The figures, released by the Cabinet Office, effectively revised the number for the second quarter to June to approximately 0.4% growth.

After a poor start to the country's vaccine effort, cases spiked in Japan this summer, prompting the government to declare a virus national emergency, limiting bar and restaurant opening hours as well as alcohol sales.

Takashi Miwa, an analyst at Nomura Securities, stated that if virus cases are kept to a minimum in the fourth quarter, consumption will likely recover significantly.

Miwa further added that some organizations say that the effect on productivity from supply problems may linger until December.

Following an array of hits from COVID-19 waves, Japan’s new Prime Minister, Fumio Kishida, has pledged to boost economic growth.

Kishida’s administration has promised to deliver vaccination booster doses as early as next month while the PM is slated to unveil an economic stimulus package worth several hundred billion dollars this week.

Japan's vaccination drive is now at a high level, with 75% of the population having been double jabbed. As a result, any future spike in virus incidence should not deter consumers from spending more in the following months.

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Sunil Jha

Sunil Jha has been a part of the content industry for close to two years. Having previously worked as a voice over artist and sportswriter, he now focuses on writing articles for, across a slew of topics, ranging from technology to trade and finance. With a business-oriented educational background, Sunil brings forth the expertise of deep-dive research and a strategic approach in his write ups.