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Japan GDP figures have witnessed a rise for the first time in three months, registering a growth rate of 1.8% in February 2023, as per the Japan Center for Economic Research (JCER).
Additionally, the think tank believes that based on figures from January and February, the country’s GDP in the fourth quarter of FY23 will shrink by 3% compared to the previous quarter.
Previously, the Japanese economy had begun contracting even before the Covid-19 pandemic hit, witnessing a 0.36% decline in 2019. Subsequently, the economy shrank in 2020 by 4.62 % before rebounding in 2021 by 1.66%. In 2022, Japan’s economy grew by 1.1%.
“A full unwinding of pandemic-related restrictions has unleashed pent-up demand for consumer spending. Unfortunately, high inflation is quickly eroding household purchasing power,” as per Deloitte. “As pent-up demand fades and the reality of weaker inflation-adjusted wages sets in, the economy will grow only modestly in 2023.”
Influencing factors for Japan GDP growth
As per JCER, Japan GDP growth in February was fueled by a 2.3% month-on-month increase in goods and services exports. According to the think tank, this coincided with a rebound in economic activities in China after the Lunar New Year holiday in late January 2023.
“As the normalisation from the corona disaster continued, the recovery of service consumption in domestic demand and inbound demand in overseas demand was remarkable,” remarked JCER in its report.
As per data provided by the think tank, external demand (exports minus imports) contributed 1.2 percentage points to Japan GDP growth rate of the country.
During the same period, private housing investment grew by 1.7% month-on-month, while private consumption grew by 0.9%. The latter is a key part of Japan GDP as it made up 55.9% of the country’s nominal GDP in December 2022. JCER claims that the increase in private consumption was aided by a spike in services consumption in various sectors, with tourism being one.
According to official statistics, Japan welcomed 1.47 million tourists in February 2023, reaching only 57% of tourist footfalls witnessed before the advent of the Covid-19 pandemic. In contrast, around 31.9 million tourists visited Japan in 2019, accounting for 11.2% of the country’s GDP. The number drastically fell to a mere 4.12 million in 2020 and 0.25 million in 2021. In 2022, the country recorded 3.2 million new tourists.
Looking forward, it is projected that Japan’s tourism sector can approach pre-pandemic levels in 2023. The sector’s contribution to Japan GDP might reach over 40 tn yen (~$300 bn) by the end of 2023, close to the $359 bn in 2019, as per a report by World Travel and Tourism Council.
“Inbound tourism only got going again from October (2022) but the pent up demand to visit Japan has meant a surge in visitors,” opined Michael Causton, Japan Retail and Consumer Specialist who publishes on SmartKarma.
“Since many tourists also have stuffed wallets due to curtailed spending during the pandemic and the Yen is at very low levels, there is much higher spending,” Causton adds.
