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A public tired of precautions against the virus has increased the intake of goods and services, but the longer-term scenario is that the global economy weakens.
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By Ben Dooley and Hisako Ueno
TOKYO — Restaurants are full. Shopping malls are swarming. People travel. And Japan’s economy has redeveloped as consumers, tired of more than two years of pandemic, have moved away from precautions that have kept coronavirus infections among the lowest levels of any rich country.
Blockades in China, skyrocketing inflation, and very high energy costs may simply not slow Japan’s economic expansion, as domestic inflows of goods and facilities soared in the current quarter of the year. The country’s economy, the third largest after the United States and China, grew at an annualized rate of 2. 2 percent in that period, according to official data released Monday.
The second-quarter result follows 0% growth, revised from an initial reading of a 1% drop, in the first three months of the year, when consumers checked out at home ahead of the immediate arrival of the Omicron variant.
After the exhaustion of this first wave of Omicron, domestic shoppers and travelers returned to the streets. The number of cases temporarily returned to record levels for Japan, but this time the public, highly vaccinated and tired of the restrictions, reacted with less fear, he said. Izumi Devalier, Head of The Japanese Economy at Bank of America.
“After the wave of omicron ended, we had a lot of construction in mobility, a lot of recovery expenses in categories like catering and travel,” he said.
The new expansion report indicates that Japan’s economy is likely, nonetheless, to return to normal after more than two years of yo-yo between expansion and contraction. Still, the country remains an economic “laggard” compared to other rich countries, Devalier said, adding that consumers, especially the elderly, “are still susceptible to Covid risks. “
As this sensitivity has slowly reduced over time, he said, “we’ve had this very slow normalization since Covid. “
Growth in the current quarter came despite the obstacles, especially for Japanese small and medium-sized enterprises.
Covid lockdowns in China have made it difficult for stores to inventory in-demand products, such as air conditioners, and for brands to get some parts for their products.
A weak yen and higher inflation also weighed on businesses. Over the past year, the Japanese currency has lost more than 20% of its price against the dollar. While this has been smart for exporters, whose products are less expensive for foreign consumers, it has driven up import prices, which are already more expensive due to shortages and supply chain disruptions caused by the pandemic and Russia’s war in Ukraine.
While inflation in Japan (around 2% in June) remains well below that of many other countries, it has forced some companies to raise costs, especially for the first time in years, which could reduce demand from consumers accustomed to paying. the same amounts year after year.
The slow return to overall economic activity has produced a sharp expansion in personal investment, according to Monday’s data.
Growth has been driven in part through spending on sustainability and enterprises’ virtual infrastructure, efforts that are strongly encouraged through government policies, said Wakaba Kobayashi, an economist at the Daiwa Research Institute.
Still, it’s unclear how long this expansion can continue, he said. Among many companies, “there is a sense that the global economy will continue to slow down,” he said. The economies of the United States, China and Europe have slowed faster. of what was expected in recent months due to the war in Ukraine, inflation and the pandemic.
Japan faces other challenges, both at home and abroad. Small and medium-sized businesses in particular are likely to experience difficulties as pandemic subsidies come to an end and pedestrian traffic to their businesses remains below pre-pandemic levels.
In addition, geopolitical tensions are creating greater uncertainty for Japan’s key industries. Friction between the United States and China over Speaker Nancy Pelosi’s scale in Taiwan this month has raised concerns among Japanese lawmakers about possible disruptions to the industry. Taiwan is Japan’s fourth largest trading partner. and a leading semiconductor manufacturer: must-have parts for Japan’s major automotive and electronics industries.
As for Japan’s overall economic outlook, “in the short term, the momentum is pretty good, but beyond that, we’re pretty cautious,” Devalier said.
At home, he expects expectation intake to decline as other people adjust to the new fashion of living with the pandemic and their enthusiasm for spending wanes. , he said, “for production and exports, we expect a slowdown in momentum that reflects the fact that we expect weaker global growth. “
Despite some signs, it will still take a while for economic activity to normalize, said Shinichiro Kobayashi, senior economist at Mitsubishi UFJ.
The economy has almost regained the length it was just before the pandemic. But even then, it is in a weakened state after a buildup in Japan’s admission tax reduced spending.
“There are still many reasons to worry,” Mr. Kobayashi said, mentioning inflation and the continuation of the pandemic. “The scenario isn’t so bad that we see a stagnation of expansion, but we also can’t say things will turn out well. “
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