Japan’s economy returned to growth last quarter and avoided a double-dip recession, as consumer and business spending proved resilient in the face of continued restrictions to contain the coronavirus.

Gross domestic product expanding an annualized 1.3% from the prior quarter in the three months through June, bouncing back after shrinking in the prior quarter, the Cabinet Office reported Monday. Economists had forecast 0.5% growth.

Key Insights

• Growth last quarter was fueled by renewed investment by businesses and a bounce back in spending by consumers, which makes up more than half the economy.
• The virus has spread far more widely in Japan since July, with a record Delta-driven wave in recent days pushing its daily caseload to more than double previous peaks, though deaths have stayed low due to high vaccination rates for seniors. A fourth state of emergency to try to contain the outbreak could reportedly be extended past August.
• For the Bank of Japan, growth may alleviate some concerns, but falling prices mean it will have to keep its massive stimulus in place for longer than central banks elsewhere.
• Japan’s economic performance will come as a relief to Prime Minister Yoshihide Suga, whose approval ratings are at record lows. Suga is widely expected to announce another stimulus package before elections that must be held by fall.

What Bloomberg’s Economist Says...

“We expect GDP to rebound in 3Q, assuming the latest wave of Covid-19 infections is brought under control by end-August. The pace of recovery further out will hinge on how quickly vaccinations proceed and the degree of any extra fiscal stimulus.”

-- Yuki Masujima, economist