Japan in recession, worst still to come
Japan fell into a recession for the first time since 2015, as its already weakened economy was dragged down by the coronavirus’s impact on businesses at home and abroad.
The world’s third-largest economy after the US and China shrank by an annualised rate of 3.4 per cent in the first three months of the year, the country’s government said on Monday.
That makes it the largest economy to officially enter a recession, often defined as two consecutive quarters of negative growth, in the coronavirus era. Other major economies around the world are set to follow, joining Japan as well as Germany and France in recession, as efforts to contain the outbreak ripple around the globe. The experiences of China, where the outbreak first emerged in December and January, suggest recovery will be long and difficult.
Japan will find it no easier. Initial figures for the April-to-June period show its economy will be slammed by efforts to contain the outbreak.
“The economy entered the coronavirus shock in a very weak position,” said Izumi Devalier, chief Japan economist at Bank of America Merrill Lynch, but “the real big ugly stuff is going to happen in the April, June print. It’s going to be three quarters of very negative growth”.
Devalier added, “It’s not a very encouraging picture.”
Businesses had already been staggering before the coronavirus hit.
Consumer spending dropped after the Japanese government in October increased a tax on consumption to 10 percent from 8 per cent, a move that Prime Minister Shinzo Abe’s administration said would help pay down
the national debt — the highest among developed nations — and fund the growing demand for social services as the country’s workers age.
Days later, a typhoon slammed into the country’s main island, inflicting enormous damage and further driving down economic activity.
Even before that, Japanese export numbers had fallen steadily all last year on slowing global demand and the fallout from the US-China trade war.
The situation has only worsened this year. The outbreak crushed Japan’s exports, forced it to postpone the Olympics and then put the country on a soft lockdown as it joined other nations scrambling to stop the coronavirus.
“The emergency declaration stopped people from going out, leading to a substantial decline in consumption,” said Kentaro Arita, a senior economist at the Mizuho Research Institute, a think tank in Tokyo. Now, he said, “it is going to be impossible to avoid an impact on the scale of the global financial crisis or even worse.”
Schools shut down, the country closed itself off to most of the world and, in mid-April, Abe declared a national state of emergency that led many people to stay home from work and businesses to close.
On the health front, the efforts seem to have paid off. Cases rose briefly before receding. The country’s health system never became overwhelmed. The total number of deaths attributed to the outbreak was under 750 as of Sunday, far lower than in other major developed nations.
But each of those decisions had a profound economic impact. School closures forced parents to stay home from work and hammered farms and dairies that make their living selling ingredients for school lunches. Cancelling foreign visas obliterated tourism and stopped a source of critical foreign labour. The emergency declaration has slowed or stopped work.
New York Times News Service