Japan Upgrades Q1 GDP to Smaller Contraction

JAPAN - TOKYO. Japan's economy shrank slightly less than initially reported in the first quarter, as private consumption remained resilient in the face of resurgent COVID-19 infections, offsetting a drop in capital spending.

The slower contraction is welcome news for policymakers worried about the world's third-largest economy's recovery this quarter amid pressures from higher energy and raw material prices, a weak yen and persistent supply disruptions.

Revised gross domestic product (GDP) data released by the Cabinet Office on Wednesday showed Japan's economy shrank an annualised 0.5% in January-March. That was a smaller drop than the preliminary reading of a 1.0% fall released last month.

On a quarter-on-quarter basis, GDP lost 0.1%, beating the median market expectations for a 0.3% drop.

Read Also: U.S. Trade Deficit Narrows Sharply as Exports Hit Record High

Private consumption, which makes up more than a half of Japan's GDP, increased 0.1% in the first quarter from the previous three months, revised up from an initially-estimated flat reading. That helped offset a 0.7% fall in capital spending.

Domestic demand as a whole contributed 0.3 of a percentage point to revised GDP figures, while net exports took off 0.4 of a percentage point.

The GDP upgrade follows data on Tuesday showing household spending posted a larger-than-expected decline in April, as the yen's sharp decline and surging commodity prices pushed up retail costs.

Economists polled by Reuters last month forecast strong annualised growth of 4.5% this quarter. A majority of respondents said they expected growth will be strong enough for the economy to recover to pre-pandemic levels.