TOKYO ⸺ Japanese companies cut spending on plant and equipment for the fourth consecutive quarter in January-March, as the economy struggles to shake off the drag from the coronavirus pandemic.
A slow recovery of firms’ propensity to spend is likely to worry policymakers hoping strong domestic demand can help make the country’s economic recovery more sustainable.
Ministry of Finance (MOF) data out on Tuesday showed capital expenditure in the first quarter fell 7.8% from the same period last year, pulled down by weaker investments in transportation equipment, electrical machinery and real estate.
It marked the fourth quarter of an annual decline in capital expenditure in a row, after posting a 4.8% contraction the final quarter of last year.
The world’s third-largest economy slumped back into decline in the first quarter as a slow vaccine rollout and repeated emergency curbs put in place to halt a resurgence of infections hurt domestic demand.
After bouncing from last year’s slump, driven by a strong recovery of exports, some analysts worry Japan’s economy could slip back into recession in the current quarter due to extended coronavirus curbs.
A preliminary estimate found Japan’s economy shrank an annualised 5.1% in the third quarter as households curtailed spending following a resurgence of infections and export growth slowed sharply.
The latest MOF survey showed manufacturers’ business spending fell 6.4% from a year earlier, while that of service-sector firms dropped 8.5%.
Tuesday’s data comes after weaker-than-expected factory output and retail sales figures showed that the economic recovery remained dependent on overseas demand.
Capital expenditure lost 0.4% in January-March from the previous quarter on a seasonally-adjusted basis, the MOF data showed.
Corporate recurring profits gained 26.0% in January-March from a year earlier, up for the first time in eight quarters, while sales were down for a seventh consecutive quarter, declining 3.0%.
Reporting by Daniel Leussink; Editing by Sam Holmes; Reuters