TOKYO: Japan’s economy shrank 7.8 per cent in the April to June quarter, the worst contraction in the nation’s modern history, as the coronavirus deepens the country’s economic woes.
The contraction from the previous quarter was slightly worse than expectations but is still significantly less severe than declines seen in many other industrial economies.
Still, it is the biggest economic contraction for Japan since comparable data became available in 1980, beyond the brutal impact of the 2008 global financial crisis.
And some analysts labelled it the worst fall since World War II, though a change in calculation methods in 1980 makes the comparison complicated.
The official data compared with the market’s expectation of a 7.6 per cent contraction, the median forecast of major economists surveyed by the Nikkei business daily.
It was the third straight quarter of negative growth, confirming a deepening recession for Japan, and raising the prospect that the government will consider pumping further stimulus into the economy.
“The official data are expected to again show the extreme severity of the negative economic impact of the novel coronavirus,” Yoshiki Shinke, chief economist at Daiichi Life Research Institute, wrote in a note before the official release of the data.
“The fall of the Japanese economy in April and May under the state of emergency went beyond expectations. Record falls are expected in both internal and external demand,” he wrote.
COVID-19 DEEPENS RECESSION
The economy contracted an annualised 27.8 per cent, with domestic demand falling 4.8 per cent and exports of goods and services plunging 18.5 per cent.
But imports fell only 0.5 per cent, faring better than the 4.2 per cent fall seen in the January to March period.
For the past year to March 2020, Japan’s real GDP came to 0.0 per cent, compared with a 0.3 per cent growth seen in fiscal 2018, the Cabinet Office said.
Japan was already struggling with a stagnating economy and the impact of a consumption tax hike implemented last year before the pandemic hit.
It has seen a smaller coronavirus outbreak compared to some of the worst-hit countries, with infections approaching 55,000 and deaths at slightly under 1,100.
A nationwide state of emergency was imposed as cases spiked in April, but the restrictions were significantly looser than in many countries, with no enforcement mechanism to shutter businesses or keep people at home.
The emergency was lifted in June, and the government has been reluctant to reintroduce measures, even as infections rise again.
Some recovery was seen in Japan after the government lifted the state of emergency, but it was not enough to offset the severe falls felt in April and May, Shinke said.
HOPE FOR RECOVERY
The contraction in April-June compared with the market’s expectation of a 7.6 per cent contraction, the median forecast of major economists surveyed by the Nikkei business daily.
The figure was less severe than quarter-on-quarter falls in some other major economies, including the United States, which logged a 9.5 per cent contraction, and Germany with a 10.1 percent decline for the same quarter.
Japan imposed looser restriction against the coronavirus and fared better than its industrial peers, said Naoya Oshikubo, senior economist at SuMi Trust.
“A collapse in personal consumption … will be the largest single factor behind weak domestic demand. Personal consumption was particularly weak in April-May when the national state of emergency was in effect in Japan,” he wrote before the data was published.
“Capital investment was also impacted by the COVID-19 pandemic as uncertainty meant companies put their investment plans on hold,” Oshikubo said.
Despite the figures, analysts said the economy could now expect a rebound, with Oshikubo projecting 2.6 growth for the July-September quarter.
“The recovery will likely be driven by rising domestic and external demand in addition to normalisation in Western nations as many countries’ lockdown measures are lifted,” Oshikubo said.
Personal consumption, which fell 8.2 per cent in the April-June quarter, should benefit from a government stimulus payment of 100,000 yen (US$939) to all residents of Japan, he said.