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As the economy emerges from the doldrums after the lockdowns were lifted in late May, many analysts expect any rebound in the current quarter to be modest as a further rise in infections keeps consumers’ purse strings tight.
“The sharp drop can be explained by the drop in consumption and exports,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.
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“I expect growth to turn positive in the July-September quarter. But overall, the rebound is slow everywhere except China. ”
The world’s third-largest economy shrank 27.8% on an annualized basis in April-June, government data showed on Monday, marking the largest drop since comparable data became available in 1980 and slightly above a median market forecast for a decrease of 27.2%.
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Although the contraction was smaller than a 32.9% drop in the United States, it was much larger than a 17.8% drop that Japan suffered in the first quarter of 2009, when the collapse of Lehman Brothers rocked global financial markets.
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The size of Japan’s real GDP fell to 485 trillion yen, the lowest since April-June 2011, as Japan still suffered from two decades of deflation and economic stagnation.
(Click here for an interactive graph of real and nominal GDP since 2011: https://tmsnrt.rs/2Fwq2JK)
The main culprit behind the dismal reading was private consumption, which plunged a record 8.2% as lockdown measures to prevent the spread of the virus kept consumers at home.
External demand – or exports minus imports – slashed GDP by 3.0 percentage points, as overseas shipments fell 18.5%, with auto exports particularly hard hit.
Falling global vehicle sales have hurt automakers like Mazda Motor Corp and Nissan Motor Co, among the biggest drivers of the Japanese economy, and their parts suppliers.
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Capital spending fell 1.5 percent in the second quarter, less than the market’s median forecast for a decline of 4.2 percent, as strong software investments offset weak spending in other sectors.
Economy Minister Yasutoshi Nishimura acknowledged that the GDP readings were “quite severe”, but pointed out some positive points such as a recent upturn in consumption.
“We hope to do all we can to bring the Japanese economy, which probably bottomed out in April and May, to a path of recovery driven by domestic demand,” he told a press conference. .
Japan has rolled out massive fiscal and monetary stimulus to cushion the blow of the pandemic, which has hit an economy already reeling from last year’s sales tax hike and the trade war between states United and China.
As the economy reopened after the government lifted state of emergency measures at the end of May, a worrying surge in infections is clouding the outlook for business and household spending.
(Reporting by Leika Kihara and Tetsushi Kajimoto, additional reporting by Kaori Kaneko and Daniel Leussink; editing by Sam Holmes)
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