Tokyo May 18 2022: Japan's economy shrank for the first time in two quarters in the January-March period as COVID-19 curbs hit the service sector and surging commodity prices created new pressures, raising concerns about a protracted downturn.
The decline presents a challenge for Prime Minister Fumio Kishida's drive to achieve growth and wealth distribution under his "new capitalism" agenda, stoking fears of stagflation - a mix of tepid growth and rising inflation.
The world's No. 3 economy fell at an annualised rate of 1.0% in January-March from the previous quarter, gross domestic product (GDP) figures showed, slower than a 1.8% contraction expected by economists. That translated into a quarterly drop of 0.2%, the Cabinet Office data showed, versus market forecasts for a 0.4% drop.
The weak reading may pressure Kishida to release even more stimulus with upper house elections pencilled in for July 10, following the 2.7 trillion yen ($20.86 billion) in extra budget spending compiled on Tuesday.
Private consumption, which makes up more than half of the economy, was little changed, the data showed, better than a 0.5% fall expected by economists but below the upwardly revised 2.5% growth seen in the December quarter.
Adding to the gloom, business optimism among Japan's manufacturers hit a more than one-year low as firms struggled with rising import costs due to a weak yen and higher raw material prices, the Reuters Tankan poll showed.