Japan slides into recession – with forecasts of worse to come

Agence France-Presse
Japan slides into recession – with forecasts of worse to come


Japan, the world's 3rd largest economy, contracts by 0.9% in the 1st quarter of 2020

TOKYO, Japan – Japan dived into its first recession since 2015, according to official data on Monday, May 18, with the world’s 3rd largest economy shrinking by 0.9% in the 1st quarter as it wrestles with the fallout from the coronavirus.

The drop in gross domestic product (GDP) followed a 1.9% decline in the 4th quarter of 2019 as a tax hike and typhoons hit Japan hard – even before the pandemic shut down much of the economy.

A recession is defined as two consecutive quarters of negative GDP growth and some analysts predicted the Japanese economy would suffer worse as the effects of the coronavirus become clear.

“We expect the worst is yet to come, with the state of emergency in Japan and the severity of the pandemic among Western nations continuing to derail the Japanese economy,” said Naoya Oshikubo, senior economist at SuMi TRUST.

Nevertheless, the 1st quarter result was slightly better than economists had forecast, with expectations for a 1.1% decline.

Japan has been hit less hard than most advanced economies by the coronavirus, with just over 16,000 cases in the whole country and around 750 deaths.

However, authorities were concerned there could be an explosive spike – especially in the densely populated capital Tokyo – and urged people to stay indoors and businesses to shut down.

Prime Minister Shinzo Abe declared a state of emergency that was lifted last week for most of the country but kept in place for economic powerhouse regions Tokyo and Osaka.

“Personal consumption has been the main casualty of the COVID-19 pandemic as consumer spending has been greatly affected by this due to people staying at home,” Oshikubo said. 

“But uncertainty stemming from the spread of the virus has also hit private capital investment as companies curtail their expenditure programs,” added the expert.

‘Significantly worse’

In an attempt to mitigate the worst effects of the crisis, Abe has pledged to give every citizen a cash handout of 100,000 yen ($930).

The handout was part of a package of stimulus measures worth around $1 trillion to protect jobs, bolster the medical sector, and ease the pain for working families.

Tourism has dropped by as much as 90%, industry and trade have ground to a halt, and the virus also forced the postponement of the Tokyo 2020 Olympics that was seen as providing a boost to the economy.

According to the details of the GDP report, private consumption dropped 0.7% quarter-on-quarter, with both household consumption and corporate investment slipping 0.8% and 0.5% respectively.

But as the coronavirus pandemic battered the global economy, Japanese exports were the hardest hit, falling by 6% compared to the previous quarter.

The full impact of the coronavirus on Japan’s economy has still to be felt and economists are bracing for a catastrophic 2nd quarter.

Oshikubo said his organization was forecasting an eyewatering 10.2% plunge in the 2nd quarter, which would be the worst since the 2008 financial crisis.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, told Agence France-Presse the 2nd quarter would be “significantly worse,” forecasting a decline of around 6% to 7%.

“As to the question of when the economy will pick up, it all depends on the number of infected and when the virus fades out.” – Rappler.com

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