Japan could shrink this quarter as virus cases surge

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Japan could shrink this quarter as virus cases surge

The likelihood is growing that Japan's economy will shrink again this quarter, according to analysts who see the surge in virus cases dragging out the country s bumpy recovery from the pandemic.

The omicron wave could cause a quarter of negative growth for the world's third-largest economy, according to Tokyo-based economists at Citigroup, BNP Paribas SA and Dai-ichi Life Research Institute.

The situation is changing fast, according to Yoshiki Shinke at the Dai-ichi Life Research Institute. The economy is going to be weak in the first quarter. Over the course of January, daily infection numbers jumped from about 500 to a record of over 80,000, forcing the government to reinstate emergency measures in most parts of the country. Policymakers are debating whether to tighten restrictions further.

Consumer confidence has plummeted by the most since the first wave of the epidemic, according to a report released Monday. Toyota Motor Corp., a bellwether for the country s manufacturing sector, has announced more production cuts, this time due to an outbreak at a supplier's factory in Japan.

Even though the number of infections is still low compared to other countries, Japan hasn't improved its hospital capacity enough, so omicrons can weigh on activity, said economist Hiroshi Shiraishi at BNP Paribas, who now sees much higher odds that the economy will shrink this quarter.

Yuki Masujima, economist at Bloomberg Economics said that the impact on activity is likely to be prolonged because of the percentage of the population that had a third shot of a vaccine in the low single digits. The risk of an economic contraction in the first quarter is growing. A government report this month is expected to show Japan returning to growth in the last three months of 2021, after contracting in five of the prior nine quarters.

As recently as two weeks ago, there was consensus among economists that the recovery would power ahead to start 2022, according to Bloomberg. The virus has made that seem less likely.

A slowdown seems unavoidable due to the spread of the omicron variant and the quasi-state of emergency imposed in response, said Kiichi Murashima and Katsuhiko Aiba in a report Monday. We can't deny the possibility of negative growth based on the trend of COVID-19 this quarter.