Japan Posts Biggest Economic Expansion in More than 50 Years But Virus Fears Stay

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Japan's gross domestic product expanded an annualized 21.4 percent in the third quarter, data showed on Monday. The biggest economic expansion in more than 50 years was propelled by a staggering growth in exports and domestic consumption.

The fast-paced growth in the three months through September was aided by government stimulus measures rolled out in the aftermath of the coronavirus pandemic. The stimulus drove a steep rise in consumer spending.

The bigger-than-expected quarterly rise in GDP clearly suggests that the Japanese economy is on its way of of the woods. Economists had forecast an 18.9 percent GDP expansion in the last three months.

Remarkably, private consumption, which accounts for more than half of the economy, increased 4.7% in the July-September quarter. This was the fastest jump since comparable data began in 1980, the Cabinet Office said.

Cautious Optimism

However, voices of cautious optimism prevailed in the analyst circles. "Government measures like Go To Travel subsidies helped boost consumption, but what concerns me is business investment fell more than I expected ... As the virus spreads again, companies are cutting back on hiring and, once government measures expire, low wages may weigh on consumption," economist Harumi Taguchi at IHS Markit said.

Japan's economy contracts less than expected 1.1% in fourth quarter
Pedestrians walk on a side walk between Japanese styles bar street at a shopping district in Tokyo, Japan, March 7, 2016. Picture taken March 7, 2016. Reuters

Experts also noted that the Q3 expansion resulted in recovering only about half of the growth to the pandemic. They also fear that a resurgence in virus cases in the coming months could roil the mood once again.

"There is no way we can be optimistic about the outlook ... Virus cases are rising at home and abroad and that will weigh on global demand and household sentiment," ," Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute, told Bloomberg.

Yoshihide Suga
Yoshihide Suga hasn’t publicly announced his candidacy but has won the backing of the largest faction of the Liberal Democratic Party (LDP), making him a strong front-runner to replace Abe YouTube Grab

More Fiscal Stimulus Coming?

Japan's newly installed Prime Minister Yoshihide Suga had called for a third extra budget last week amid fears that recovery and growth could slip. Yasutoshi Nishimura, the minister for
economy's revitalization, also noted that the rate of growth in the last quarter have been better if there wasn't a rise in Covd-19 cases midway through the pandemic.

Suga's move comes amid reports that Japan 's economy will shrink in the current fiscal year ending in March 2021. Analysts believe that the world's third-largest economy could end up dwindling as much as 5.6 percent in the current fiscal year.

Japan said a total of 1,440 new coronavirus cases were reported on Sunday, while the daily figure exceeded 1,000 for the sixth straight day. Seven deaths were also reported on Sunday. According to the Japan Times, the government is focused on striking a balance between limiting the spread of the virus and and keeping social and economic alive.

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