Japan Q1 GDP shrinks 1.3%, hit by virus restrictions

TOKYO, Japan — Japan's economy contracted 1.3 percent in the three months to March after the government reimposed virus restrictions in major cities as infections surged, data showed Tuesday.

The quarter-on-quarter fall came after the world's third-largest economy grew for two quarters to December, but the expansion was stopped in its tracks by a winter increase in coronavirus cases.

The government imposed new virus states of emergency in January in response, urging people to stay at home and calling for restaurants to close earlier.

The measures slowed consumption, hitting growth despite the relative strength of the manufacturing sector.

The 1.3 percent contraction was largely in line with economist expectations.

"Personal consumption has been particularly hard hit by the Covid-19 emergency measures," Naoya Oshikubo, senior economist at SuMi TRUST, said in an analysis issued before the release of the official data.

"On a positive note, private capital investment is expected to continue to pick up as the manufacturing industry as a whole remains strong," Oshikubo said.

Economists warn that the slowdown is likely to continue, with the government forced to impose a third state of emergency in several parts of the country -- including economic engines Tokyo and Osaka -- earlier this month.

The emergency measures are tougher than in the past, and have been extended to the end of May and expanded to several other regions in recent days.

Further complicating the growth picture is Japan's comparatively slow vaccine rollout, said Marcel Thieliant, senior Japan economist at Capital Economics.

"With the medical situation still worsening and the vaccine rollout too slow, it will take until the end of the year for output to return to pre-virus levels," he said in a note.