Instant view: Japan economy contracts on quake damage
TOKYO (Reuters) - Japan's economy shrank more than expected in the first quarter as the devastating earthquake in March weighed on corporate capital spending and private consumption.
-- Gross domestic product shrank 0.9 percent in the first quarter, compared with a median market forecast for a 0.5 percent contraction. On an annualized basis, the economy shrank 3.7 percent against a forecast of a 2.0 percent contraction.
-- Net exports shaved 0.2 percentage point off GDP growth, against the median estimate that they would trim 0.1 point from the figure.
-- Private consumption, which accounts for about 60 percent of the economy, was down 0.6 percent against the median forecast of a 0.5 percent decline.
-- Corporate capital spending fell 0.9 percent against the market forecast of a 1.2 percent decline.
YOSHIKIYO SHIMAMINE, CHIEF ECONOMIST AT DAI-ICHI LIFE RESEARCH INSTITUTE
"In terms of the trend, things should improve in the April-June quarter. But the bulk of the January-March quarter was business as usual before the disaster, so in comparison, April-June could be even lower. So I think the effect of the disaster was very significant and it will take a long time to get back to previous levels.
"We expect to return to growth in the July-September quarter. But depending on the private sector, investment, how companies and consumers behave, and whether that leads growth, it could be even later.
"The Bank of Japan has done what it needs to do in terms of emergency action, so I don't think these figures will prompt any further action. But as the recovery builds up, demand for funds will grow, so they need to avoid any rise in interest rates."
TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE, TOKYO
"GDP was much weaker than expected with consumption especially weak. Today's data showed the economy has clearly contracted and the trend is expected to continue. The outlook also looks weak. The economy during the April-June period is likely to contract. Growth in July-September is likely to be very sluggish due to expected power shortages and supply chain problems.
"As the economy is expected to stay weak, the Bank of Japan may have to take further monetary easing measures, such as possibly increasing the amount of its purchases of Japanese government bonds."
SEIJI ADACHI, SENIOR ECONOMIST, DEUTSCHE SECURITIES, TOKYO
"Maybe the economy could grow slightly in second quarter, but the problem is the pace of the recovery. The pace could be very slow and very far away from normalization.
"I worry about the second quarter, which is the beginning of the new fiscal year. Many companies could revise down their capital expenditure plans.
"Consumption could have bottomed out in April, but looking at consumer sentiment indexes, they continue to decline. The reason is many consumers worry about future job conditions.
"The current government could postpone the plan for recovery until August, which is too late."
JUNKO NISHIOKA, CHIEF ECONOMIST, RBS SECURITIES, TOKYO
"The bigger-than-expected contraction stemmed partly from special factors such as strong growth in imports, while the drop in private consumption was not surprisingly big. The outlook for the economy's recovery in the third quarter remains unchanged although the extent of the rebound remains uncertain with the government yet to unveil the size of the second extra budget.
"One thing to note is the bigger-than-expected GDP deflator, which counters some projections that the output gap would shrink due to supply constraints sparked by the earthquake and tsunami. It indicates consumption is deteriorating at a faster pace than the fall in supply, boding ill for Japan's efforts to escape deflation.
"A domestic demand-led recovery seems distant as higher commodity prices are seen denting household purchasing power, meaning the BOJ needs to stick to its ultra-loose policy for a longer period than expected."
-- Japan is facing its worst crisis since World War Two after a 9.0 magnitude earthquake and deadly tsunami battered its northeast coast on March 11, leaving more than 24,000 dead or missing and crippling a nuclear plant.
-- Analysts expect the economy to emerge from a downturn sometime in the autumn with an easing of supply constraints, such as supply chain disruptions and power shortages that have weighed on factory output.
-- The Bank of Japan eased monetary policy days after the earthquake and has signaled its readiness to act again if damage from the disaster threatens the economy's return to a moderate recovery by hurting business and household sentiment.