Japan's economy in the January to March period contracted a real 0.2 percent from the previous quarter, or an annualized 1.0 percent, as COVID-19 restrictions slowed consumption and a surge in vaccine imports offset export growth, government data showed Wednesday.
Real gross domestic product, the total value of goods and services produced in the country adjusted for inflation, decreased following growth of 0.9 percent in the previous quarter, according to the preliminary data released by the Cabinet Office.
Still, the latest quarterly GDP decline was better than the average projection of an annualized 1.8 percent shrinkage by private-sector economists.
Takeshi Minami, chief economist at the Norinchukin Research Institute, said the GDP contraction shows the Japanese economy, especially the retail and tourism-related sectors, was hurt by COVID-19 with the government repeatedly asking for measures that curbed economic activity after the resurgence of the virus.
To contain the coronavirus spread, over 30 of Japan's 47 prefectures were put under a quasi-state of emergency at one point during the reporting quarter. People were asked to refrain from traveling across prefectural borders, and restaurants and bars were requested to close earlier under the restrictions, which were fully lifted in late March.
Private consumption, which accounts for more than half of the country's GDP, fell 0.03 percent, compared with a 2.5 percent growth in the previous quarter.
Declines in spending on eating out, transportation and leisure accommodation contributed to the overall decrease amid a resurgence of coronavirus infections caused by the highly contagious Omicron variant, a government official said.
Among household expenditures, a fall in spending on services as well as durable goods including cars was partly offset by higher electricity bills. Unseasonably cold weather may have prompted people to use more heating during the reporting quarter, the official said.
Import growth outpacing that of exports also contributed to the overall GDP decline.
Imports grew 3.4 percent, following a 0.3 percent expansion in the previous quarter, with an increase in shipments of coronavirus vaccines and mobile phones as well as higher payments for research and development conducted by overseas companies contributing.
Exports rose 1.1 percent, compared with a 0.9 percent increase in the previous quarter led by a recovery of car shipments to the United States.
Meanwhile, capital expenditure, another key pillar of domestic demand, increased 0.5 percent, following 0.4 percent growth in the previous quarter, on solid investments in general machinery such as gas turbines as well as on research and development.
Private residential investment fell 1.1 percent for the third consecutive quarter of decrease as construction material prices remained high.
Government spending increased 0.6 percent on procurement of COVID-19 vaccines but overall public demand, which includes government consumption, public investment and change in public inventories, decreased 0.2 percent.
Looking ahead, some analysts expect Japan's GDP will return to a growth path in the current April to June period, as consumption recovers after the removal of COVID-19 restrictions.
But they also say surging fuel and food prices amid Russia's invasion of Ukraine exacerbated by the weaker yen against the U.S. dollar could weigh on the country's economy.
Minami said, in addition to the Ukraine crisis, China's "zero-COVID" policy that led to a lockdown in Shanghai has caused supply disruptions and may dent private spending.
In nominal terms, unadjusted for price changes, Japan's economy expanded 0.1 percent, or an annualized 0.4 percent.
The annualized size of real GDP for the reporting quarter was 537.92 trillion yen ($4.2 trillion). The government missed its projection that GDP will return to its pre-pandemic level seen in October to December 2019 by the end of fiscal 2021.
In the final quarter of 2019, the size of GDP stood at 541.81 trillion yen.
In fiscal 2021 ended this past March, the world's third-largest economy grew 2.1 percent in real terms, expanding for the first time in three years.
The annualized size of real GDP for fiscal 2021 was 537.02 trillion yen, still lower than the 550.51 trillion yen posted in pre-pandemic fiscal 2019.
Revised GDP data for the January-March quarter are scheduled to be released on June 8.