According to a Reuters survey of economists conducted on Friday, Japan’s economy is likely to have grown at a slower rate than initially anticipated in the third quarter, and the country faces continuing threats from rising raw material costs and coronavirus-related production and supply interruptions. The government and central bank officials are hopeful that a surge in consumer spending would put the export-dependent economy firmly on the road to recovery after Japan witnessed COVID-19 case numbers drop and made significant headway on vaccines in recent weeks.

Japan’s Q3 Growth Has Been Further Reduced Due To COVID Drag

Analysts, on the other hand, warned of dangers such as an unanticipated economic downturn in China and a scarcity of semiconductor chips and industrial components as a result of the outbreak. Harumi Taguchi, the senior economist at IHS Markit, said that there is a danger that difficulties caused by supply chain disruption may persist for a longer period of time, placing negative pressure on global growth.

Japan's Q3 Growth Has Been Further Reduced Due To COVID Drag
Morning commuters make their way to work in Tokyo, Japan, on Tuesday, May 29, 2012. Japan’s jobless rate unexpectedly rose and retail sales fell for a second month, underscoring concern that an economic recovery will lose momentum in the face of gains in the yen and Europe’s debt crisis. Photographer: Tomohiro Ohsumi/Bloomberg via Getty Images

According to the consensus estimate of 39 economists surveyed, Japan’s economy expanded by 0.8 percent on an annualized basis in the third quarter, which was lower than the government’s 1.2 percent growth predicted last month. According to the survey, the economy is projected to grow at a faster pace of 4.5 percent this quarter as lifting the state of emergency restrictions stimulates consumption and business activity.

According to the results of the survey conducted between October 6-14, the estimate was broadly in line with the forecast for a 4.4 percent increase made last month. Due to a lack of spare parts and manufacturing interruptions in Southeast Asia, Japanese automakers have been forced to reduce production in recent months, casting a shadow over the country’s export-dependent economy.

Japanese businesses are also confronted with increasing raw material prices, which are exacerbated by the weakening of the yen, which threatens to reduce profit margins. According to Mari Iwashita, senior market economist at Daiwa Securities, increasing input prices would adversely affect the terms of trade for a significant raw material importer like Japan, which is already suffering from a weakening yen.

“This will result in a reduction in corporate earnings as well as a reduction in actual buying power for individuals,” Iwashita said. The survey also revealed that Japan’s incoming Prime Minister, Fumio Kishida, should concentrate his efforts on combating the coronavirus epidemic, accelerating the digitalization of the economy, and increasing domestic consumption and demand. Answering the question about which sectors the government should prioritize under the next prime minister, 27 economists chose “reaction to the epidemic caused by the coronavirus.”

The following two most popular choices were “digitalization in society and among businesses” and “stimulating domestic demand as well as private consumption,” which were selected by 17 and 14 economists, respectively, as the most popular choices. Several “social security problems,” such as the pension scheme and the care of the elderly and children, were selected by six economists. International security policy was chosen by three experts, while fiscal reform was chosen by none. Respondents were given the option of selecting up to two categories.