Japan enters recession, recession expected to deepen as pandemic wreaks havoc


TOKYO (Reuters) – The Japanese economy has entered recession for the first time in four and a half years, putting the nation on the path to its deepest post-war collapse as the coronavirus crisis ravages businesses and consumers.

FILE PHOTO: A man wearing a protective mask walks in a business district in the midst of the epidemic of coronavirus disease (COVID-19) in Tokyo, Japan, May 12, 2020. REUTERS / Kim Kyung-Hoon / File Photo

Monday’s first quarter GDP data underscored the growing impact of the epidemic, exports having plunged the most since the devastating earthquake in March 2011, as global blockages and chain disruptions supply hit shipments of Japanese products.

Analysts warn of an even darker picture for the current quarter as consumption collapsed after government asked citizens to stay home and businesses to close, heightening the challenge for policymakers politicians grappling with a pandemic once in the century.

“The economy is almost certain to have suffered an even deeper decline in the current quarter,” said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute. “Japan has entered a full-blown recession. “

The world’s third largest economy fell 3.4% year-on-year in the first quarter, according to official preliminary data for gross domestic product (GDP), less than the median market forecast for a decline of 4.6%.

The recession added to an even steeper 7.3% drop over the October-December period, with consecutive quarters of contraction meeting the technical definition of a recession. The last time Japan experienced a recession was in the second half of 2015.

The coronavirus, which first appeared in China at the end of last year, has devastated the global economy as many countries have put in place strict closures to limit the epidemic that has so far killed more than 310,000 people worldwide. The pandemic has disrupted supply chains and businesses massively, particularly in trade-dependent countries like Japan.

In fact, the fallout from the virus on Japanese companies was revealing, with exports down 6.0% in the first quarter, the largest drop since April-June 2011.


The disruption in world trade was highlighted in recent March data, with exports falling the most in almost four years due to the drop in shipments to the United States.

Even the country’s major globetrotter manufacturers have not been spared the impact of the pandemic.

Toyota Motor Corp (7203.T) announced on Friday that it would cut domestic vehicle production by 122,000 units in June due to lack of demand. The automaker expects full-year operating profit to drop 80%, its lowest level in nine years.

The gloom in Japan is expected to worsen in the coming months.

Analysts polled by Reuters believe the Japanese economy will shrink 22.0% year-on-year in the current quarter, which would be the largest decline ever, with production pressure intensifying after the Prime Minister Minister Shinzo Abe declared a national state of emergency in April amid an increase in coronavirus infections.

The emergency was lifted for most regions on Thursday, but remained in effect for some major cities, including Tokyo.

Private consumption, which represents more than half of the Japanese economy of 5 trillion dollars, fell by 0.7% in January-March, less than market forecasts for a fall of 1.6%, because strong demand for food and basic necessities partially offset the impact on service spending.

Still, it marked the second consecutive quarter of decline, as households were hit by the double whammy of the coronavirus and an increase in sales tax to 10% from 8% in October of last year.

Capital spending fell 0.5% in the first quarter after falling 4.8% in October-December last year, according to GDP data, suggesting that uncertainty about the outlook is deterring companies to boost spending.

Overall, domestic demand depressed GDP growth by 0.7 percentage points, while external demand fell 0.2 points.

All of this put a strain on the job market. The unemployment rate in March hit its highest level in a year, while job availability fell to a low of more than three years.

The government has already announced a record $ 1.1 trillion stimulus package, and the Bank of Japan widened the stimulus for the second consecutive month in April. Abe promised a second supplementary budget later this month to finance further spending measures to cushion the economic blow from the outbreak.

Still, many analysts warn that government support will come too little, too late due to the slow implementation of spending plans.

FILE PHOTO: Japan’s economy has been seriously disrupted by the coronavirus epidemic and restrictions imposed to curb its spread, leaving many parts of Tokyo much quieter than usual. / Photo taken on November 24, 2018 / REUTERS / Issei Kato

“As always in Japan, implementation is very slow. It will take until the second half of the second quarter (and) the third quarter “for government stimulus to take effect,” said Martin Schulz, chief economist at Fujitsu.

“The recovery will be slower than what many hope … To recover from this crisis, it will take at least about two years. “

Report by Leika Kihara and Tetsushi Kajimoto; additional reports by Kaori Kaneko and Daniel Leussink; Editing by Shri Navaratnam

Our standards:Principles of the Thomson Reuters Trust.


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