(Bloomberg) -- Japan’s household spending fell in January, as consumers held back on spending during the rapid spread of the omicron variant and renewed restrictions on activity, adding to the risk that the economy will shrink this quarter.
Outlays fell 1.2% from December for the sixth drop in the last nine months, the ministry of internal affairs reported Friday. Spending rose 6.9% from the low levels of a year ago, compared with a 3.4% gain forecast by analysts.
The fall in spending from last month could contribute to Japan’s recovery slipping back into reverse this quarter with the war in Ukraine adding to the uncertainties for the economic outlook. Household spending accounts for more than half of gross domestic product.
Spending dropped as virus cases shot up from around 500 a day at the beginning of January to more than 100,000 a month later, sapping momentum from a rebound in consumption in the last quarter of 2021.
The spread of omicron prompted Prime Minister Fumio Kishida’s government to bring back restrictions telling businesses to cut their operating hours and restrict alcohol sales.
The year-on-year gain shows that the hit to spending from the latest restrictions hasn’t been as big as the drop last January during the stricter curbs of a full state of emergency.
While the omicron wave seems to have peaked in February, Kishida has extended this year’s quasi-emergency measures in Tokyo and other areas into late March because the pace of the retreat has been slow.
What Bloomberg Economics Says...
“Looking forward, we expect a mild drop in 1Q GDP spending, which is a quarter-on-quarter measure. Outlays will be hit by virus curbs that were reinstated in January and have been extended into March for key areas of the country.”
-- The Asia Economist Team
To read the full report, click here.
He’s also been trying to speed up a third vaccine shot, which has been lagging behind other advanced nations. Less than 30% of the population has received the booster shot so far.
Concern is mounting that escalating energy prices exacerbated by sanctions on Russia will continue to keep household consumption subdued even after omicron concerns recede. The government has responded to the increase in gasoline prices by ramping up subsidies, but speculation is emerging that more help will be rolled out.
Around half of economists surveyed by Bloomberg expect Kishida to unveil further stimulus measures to support the economy ahead of a summer election he needs to do well in to shore up support for his leadership.
Kishida, Japan’s third premier of the pandemic, already put together a 56 trillion yen package in November to support growth.
(Adds more details from release)
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