Japan says economy contracted less than earlier reported

TOKYO (AP) - Japan reported Monday that its economy contracted at an annual rate of 2.2% in January-March, less than initially estimated.

The update from the Cabinet Office was an improvement on the 3.4% contraction earlier reported. It said private sector demand had not dropped as much as previously estimated.

Analysts say the revision wasn’t surprising and a recovery is expected as countries reopen after their coronavirus shutdowns.

The annual rate is the projected number if the same level of growth or contraction in that quarter lasted for a whole year. The on-quarter drop was 0.6% for the real gross domestic product, or GDP, the total value of a nation’s goods and services. The earlier quarter-on-quarter growth estimate was minus 0.9%.

Japan’s economy, the world’s third largest, has been stagnant for years and was in trouble even before the pandemic hit consumer spending and other main drivers of growth.

The country also imposed only limited shutdowns to fight the new coronavirus, leaving less room for a rebound than in some other countries.

Yoshimasa Maruyama, chief market economist for SMBC Nikko Securities, said the upward revision was not surprising. Given the reopening of economies worldwide a recovery is likely, helped by pent-up demand.

“The Japanese economy will rebound very quickly, but after that, it will again falter and stall,” he said, as other problems won’t disappear even if the fallout from COVID-19 can be brought under control.

A sales tax hike in October depressed consumer spending, a major factor behind a 7.2% contraction in the last quarter of 2019, even before the pandemic hit.

Growth was flat in the quarter before that through September.

Trade friction between the U.S. and China, Japan’s most important trading partners, has further sapped demand.

The government has ramped up spending and rolled out an unprecedented amount of stimulus to help businesses and consumers weather the crisis.

Japan’s unemployment rate has been rising slightly and was at 2.6% in April. But joblessness has not shot up here, as it has in the U.S. or other nations where layoffs are more common. Japan also has long had a labor shortage problem.

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Yuri Kageyama is on Twitter at https://twitter.com/yurikageyama