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Japan's 1st qtr GDP fall upgraded to 3.9% on more public demand

This May 18, 2021 photo taken from a Mainichi Shimbun helicopter shows skyscrapers in Tokyo's Marunouchi business district. (Mainichi)

TOKYO (Kyodo) -- Japan's economy in the January-March period shrank an annualized 3.9 percent, upgraded from a preliminary 5.1 percent contraction, as more-than-expected health care costs pushed up government spending, the government said Tuesday.

    Real gross domestic product, the total value of goods and services produced in the country adjusted for inflation, contracted 1.0 percent from the previous quarter on a seasonally adjusted basis for the first shrinkage in three quarters amid the coronavirus pandemic, according to the Cabinet Office.

    During the reporting period, the government declared a state of emergency in 11 of Japan's prefectures including the Tokyo metropolitan area, requesting people to stay at home and restaurants and bars to close earlier.

    The contraction came after the world's third-largest economy expanded by double-digit percentages on an annualized basis for two consecutive quarters with the resumption of economic activities, after the first virus emergency in spring 2020 brought about a record 28.6 percent plunge in the second quarter last year.

    The latest figure was better than the average forecast of an annualized 4.9 percent shrinkage by eight private-sector economists polled by Kyodo News.

    On a quarterly basis, government spending dropped 1.1 percent and public investment decreased 0.5 percent, revised upwardly from preliminary declines of 1.8 percent and 1.1 percent, respectively.

    The upward revisions reflect latest statistics showing higher-than-expected medical care costs and the value of public construction work, a government official said.

    "More people than expected went to hospital in March after refraining from seeing doctors during the virus emergency, which pushed up health care costs," said Keiji Kanda, a senior economist at the Daiwa Institute of Research.

    "The GDP's upward revision this time doesn't mean that business conditions were better than initially reported," Kanda said, noting that public spending accounts for some 20 percent of the GDP and its upgrade is believed to cut the GDP shrinkage by an annualized 0.8 or 0.9 percentage point.

    Capital expenditure decreased 1.2 percent, improved from a 1.4 percent fall in the initial data, reflecting a smaller-than-expected decrease in business investments as shown in Financial Ministry data released last week.

    Private consumption, which accounts for more than half of the country's GDP, shrank 1.5 percent, revised downwardly from a 1.4 percent decline, with the nation's services sector still affected by the coronavirus pandemic.

    Exports and imports expanded 2.2 percent and 3.9 percent, respectively, both downgraded by 0.1 percentage point.

    As for the outlook, many analysts say Japan's economy could mark a second straight quarterly GDP shrinkage, after the spread of highly contagious virus variants prompted the government to declare a third state of emergency in late April.

    The measure is now scheduled to last until June 20 and is expected to further dampen consumer spending.

    The revision for the reporting quarter left the real GDP contraction in fiscal 2020 through March unchanged at the preliminary 4.6 percent.

    Down for a second straight year, it was the sharpest annual shrinkage since data became available in fiscal 1955, exceeding the 3.6 percent fall in fiscal 2008 logged in the wake of the global financial crisis.

    Nominal GDP, not adjusted for inflation, dropped 1.3 percent, or an annualized 5.1 percent, in the first quarter of 2021, revised upwardly from the 6.3 percent annualized decrease initially reported on May 18.

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