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Japan Jan.-March GDP contraction upgraded to annualized real 0.5%

People walk in the sun on May 30, 2022, in Tokyo. (AP Photo/Eugene Hoshiko)

TOKYO (Kyodo) -- Japan's economy shrank an annualized real 0.5 percent in the January-March period, revised up from an initially reported 1.0 percent contraction, on stronger personal consumption amid COVID-19 restrictions, government data showed Wednesday.

    The decline in inflation-adjusted gross domestic product, the total value of goods and services produced in the country, corresponds to a 0.1 percent fall on a quarterly basis, the Cabinet Office said. It followed an annualized 4.0 percent expansion in the previous quarter.

    The latest figure for the quarter was better than the average forecast of an annualized 1.2 percent contraction by seven private-sector economists polled by Kyodo News.

    Private consumption, which accounts for more than half of the country's GDP, was revised up to a 0.06 percent increase from a 0.03 percent decline on a quarterly basis, contributing to the overall upgrade.

    Although spending on eating out and accommodation remained weak as many areas remained under coronavirus restrictions that called for restaurants to close early, the latest data related to output and services showed declines in car sales and mobile phone communication fees were not as large as projected, a government official said.

    Among consumption expenditures, spending on durable goods such as cars fell 0.8 percent, revised upward from a 1.6 percent decline, while spending on services, including communication fees, sagged 0.1 percent, up from a 0.2 percent decrease.

    "An improvement in personal consumption was strong enough to offset the decline until February," said Atsushi Takeda, a chief economist at the Itochu Research Institute, as the COVID-19 curbs were lifted in late March.

    Economists said an upgrade of the change in private inventories was another factor in the overall revision, positively contributing to economic growth by 0.5 percent, compared with the previous 0.2 percent, as stocks of cars in production rose.

    But Takeda said increased inventories were actually a negative sign as automakers faced difficulties in selling their vehicles due to supply chain constraints and weakening demand in the wake of the resurgence of the Omicron variant of the coronavirus in January.

    Capital expenditure fell 0.7 percent, downgraded from an initial 0.5 percent increase after taking into account the latest data showing weaker software investment.

    Exports grew 1.1 percent, unchanged from the initial report, while imports increased 3.3 percent, downgraded from a 3.4 percent rise.

    Government spending, including coronavirus vaccine purchasing costs, rose 0.5 percent, downgraded from a 0.6 percent increase, while public investment sagged 3.9 percent, revised downward from a 3.6 percent decline.

    Looking ahead, many economists said the recovery in private consumption is expected to continue, although it may be dragged down by the recent surge in food and fuel prices triggered by Russia's invasion of Ukraine.

    Itochu's Takeda said exports to China may slow down due to the country's strict "zero-COVID" policy that has led to lockdowns, while exports to European countries may also be dented as those that have close trade ties with Russia are being adversely impacted by the imposition of economic sanctions over the war.

    Nominal GDP, not adjusted for inflation, expanded 0.2 percent, or an annualized 0.6 percent, in the reporting quarter, revised up from an initially reported annualized increase of 0.4 percent.

    In fiscal 2021 ended March, the world's third-largest economy grew 2.2 percent in real terms, revised up from an increase of 2.1 percent and marking the first expansion in three years.

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