Tokyo — Restaurants are full. The mall is overflowing. people are traveling. Japan’s economy is also starting to grow again as more than two years of pandemic-weary consumers turn away from precautionary measures that have kept COVID-19 at a level lower than any wealthy country.
Lockdowns in China, soaring inflation and soaring energy prices have failed to curb Japan’s economic expansion, with domestic consumption of goods and services soaring in the last three months of 2018. Her third-largest economy after the US and China grew at an annual rate of 2.2% during that period, government data showed Monday.
The second quarter results show 0% growth (corrected from an initial 1% decline) in the first three months of the year as consumers stayed home in the face of the rapid spread of the Omicron variant. continued.
After the first Omicron wave burned out, shoppers and domestic tourists are back on the streets. Cases then quickly returned to record highs in Japan, but the public reaction was less frightening this time, said Izumi Devalier, head of the Japanese economy at Bank of America. rice field.
“After the Omicron wave ended, there was a lot of mobility and a lot of catch-up spending in categories like restaurants and travel,” she said.
A new growth report shows Japan’s economy may finally be back on track after more than two years of yo-yo between growth and contraction. Still, the country remains economically “lagged” compared to other wealthy nations, Devalier said, adding that consumers, especially the elderly, “remain sensitive to COVID-19 risks.” is,” he added.
That sensitivity has been slowly declining over time, so “we’ve had this very gradual recovery and normalization from Covid,” she said.
Growth in the second quarter came despite severe headwinds, especially for Japanese SMEs. China’s coronavirus lockdown has made it difficult for retailers to stock high-demand products such as air conditioners, and for manufacturers to source critical parts for their goods.
A weak yen and rising inflation are also putting pressure on companies. Last year, the Japanese currency fell more than 20% against the dollar. This is good for exporters, whose products have become cheaper for overseas customers, but are already more expensive due to shortages and supply chain disruptions caused by the pandemic and Russia’s war with Ukraine. It pushes up the price of imported goods.
Japan’s inflation rate was around 2% in June, much lower than in many other countries, but some companies have been forced to raise prices significantly for the first time in years, leaving the same amount for the year. Demand from consumers accustomed to paying may weaken. years later.
Japan faces different challenges at home and abroad. Small businesses in particular may struggle as pandemic subsidies end and business traffic is below pre-pandemic levels.
Additionally, geopolitical tensions are increasing uncertainty for Japan’s key industries. Tensions between the United States and China over House Speaker Nancy Pelosi’s visit to Taiwan this month have raised concerns among Japanese policymakers about possible trade disruptions. Taiwan is Japan’s fourth largest trading partner and an important semiconductor producer. Semiconductors are essential components of Japan’s large automotive and electronics industries.
As for Japan’s overall economic outlook, Devalier said, “Momentum is pretty good in the short term, but beyond that it’s pretty cautious.”
At home, she expects consumption to slow as people adjust to the new normal of living with the pandemic and their enthusiasm for spending wanes. Years of stagnation in wage growth has lagged inflation and could affect spending. She also said she “expects slower momentum for manufacturing and exports, reflecting the fact that global growth is expected to slow.”
Even under ideal circumstances, it will take at least a year for domestic consumption in Japan to return to pre-pandemic levels, said Shinichiro Kobayashi, senior economist at Mitsubishi UFJ Research and Consulting.
“Next year, there should be no need to worry about the new coronavirus infection and there should be no restrictions on economic activity,” he said.
By then, Japan will most likely ease restrictions on overseas tourism and business travel, he said.
However, Omicron’s case count is still rising, and he said it would be “impossible” to return to a completely normal life this year.