MNI: Japan Econ To Return To Pre-Covid Level In '21: Govt Aide

Despite Delta infections growing across Japan, the baseline view is still that Japan's economy should return to its pre-coronavirus level in 2021, a senior Cabinet Office official told reporters Monday, although acknowledging "there are downside risks".

"If the vaccinations accelerate in or after autumn, infections will be restricted and private consumption will likely recover gradually, although we need to keep a close eye on downside risks," the official added. However, he warned that the closure of auto-manufacturing plants caused by the spread of coronavirus in the Southeast Asian countries will restrict production and exports in the third quarter in Japan.

The official noted that the supply restriction may not be big, although more data was needed to gauge Japan's production levels in Q3. Corporate demand for capital investment remains firm amid a recovering economy as businesses had reduced their capital investment in the last fiscal year, the official said.

Japan's economy posted the first growth in two quarters for the April-June period in the wake of the rebound of capital investment and of private consumption from their weak Q1, preliminary GDP data released by the Cabinet Office Monday showed.

The Q2 GDP rose 0.3% q/q, or an annualized +1.3% following a revised -0.9% q/q, or an annualized revised -3.7% for the first quarter.

Private consumption, which accounts for about 60% of Japan's GDP, rose 0.8% q/q in Q1, after a revised 1.0% fall in Q1. The median forecast was for a
0.1% q/q fall.

Business investment rose 1.7% q/q in Q2, the first rise in two quarters following revised -1.3% in Q1. The median forecast was for a 2.9% rise.

The average economist forecast for Q3 GDP growth is annualized at +2.55%, according to the latest monthly ESP Survey of 36 economists by the Japan Center for Economic Research conducted from July 30 to August 6.