25th October 2020

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Japan’s economy contracted at its fastest rate in 40 years

Japan’s economy contracted at its fastest rate on record as it battles the coronavirus pandemic

The world’s third-largest economy saw a 7.8% drop in gross domestic product in April-June compared to in the previous quarter, a 27.8% on an annualized basis. Japan was already struggling with weak economic growth before the crisis. The figures released on Monday are a stark reminder of the severe financial shock facing countries around the world.

  • Japan entered recession earlier this year after two successive quarters of economic contraction. Its latest data for the April-June quarter was the biggest drop since comparable figures were available in 1980 and was slightly higher than analysts’ expectations.
  • One of the main factors behind the recession was a sharp drop in domestic consumption, which accounts for more than half of the Japanese economy.
  • Exports have also fallen dramatically as global trade is affected by the pandemic. The most recent data is the third consecutive quarter of decline for the Japanese economy, which represents its worst performance since 1955.
  • The recession puts additional pressure on a Japanese economy that was already struggling with 10% sale last year the effects of a higher tax, with Typhoon Hagibis.
  • Japan is the latest in a series of Asian economies to report significantly weaker second-quarter GDP data. This should come as no surprise; No one escaped the reach of the pandemic, and even though strict closures weren’t in place, people generally stayed inside and didn’t spend any money.
  • This has a ripple effect on business profits, as consumers buy less and businesses earn less. This is a vicious cycle which in turn leads to a lack of confidence in recruiting potential candidates, which means that there is also nervousness about job prospects.
  • All of this is reflected in today’s numbers. Yet now is the time to look to the future and the possibility of a rebound. Japan is expected to do better than other economies, some analysts say.
  • Capital Economics says that although the world’s third largest economy is in the midst of a second wave of infections, its health care systems are not overwhelmed and new cases have started to decline.
  • The research house says it expects third-quarter GDP to rebound and continue into the next year. After the record contraction, most analysts expect Japan’s economic growth to rebound in the coming months.
  • Prime Minister Shinzo Abe has introduced massive stimulus packages aimed at helping cushion the blow of the pandemic. As Japan lifted state of emergency measures at the end of May, fears persist that a recent spike in infections could again affect business and household spending.
  • China, the world’s second-largest economy, also offers reasons for hope. Its economy rebounded in the period from April to June, with a growth of 3.2%.
  • Preliminary data on gross domestic product, the total value of goods and services produced in the country, is down 7.8 percent on a seasonally adjusted quarterly basis, marking negative growth for the third quarter in a row, according to the Bureau of the Cabinet.
  • Comparable data is available for the April-June 1980 quarter. But a Cabinet Office official said the latest figure was seen as the biggest contraction on record, even since 1955, the first time the government can track reference values.
  • Before the outbreak of the pandemic, the Japanese economy was already lagging behind due to the trade dispute between the United States and China and a 2 percentage point increase in excise duties last year.
  • Damage to the economy worsened during the pandemic after the central government declared a state of emergency in April.
  • Local governments have asked residents to stay at home and non-essential businesses to suspend operations in accordance with the emergency declaration, which was first issued on April 7 for Tokyo and six other prefectures and for the whole. of the country later. It was lifted for the 47 prefectures at the end of May.
  • The latest figures, which far exceeded the previous record of an annualized real contraction of 17.8% in the January-March 2009 quarter in the wake of the global financial crisis, were worse than the average economy forecast.
  • The latest figures, which far exceed the previous record of an annualized contraction of 17.8% in real volume in the January-March 2009 quarter after the global financial crisis, were worse than the average predicted by economists. private sector decreased 26.59%.
  • The Japanese economy contracted 7.0% year-on-year during the October-December period, affected by the increase in the consumption tax from 8% to 10% in October and the consequences of a devastating typhoon. During the period from January to March, the economy contracted 2.5% as the virus began to spread throughout the country.
  • In the quarter under review, private consumption, which accounts for more than half of the Japanese economy, fell 8.2% from the previous quarter, as spending on travel, restaurants and shopping fell significantly in the middle.
  • The drop in consumer spending was also the largest on record, exceeding a 4.8% drop between April and June 2014, after the previous increase in consumption tax from 5% to 8% on the 1st April of the same year.
  • Exports of goods and services, including foreign tourist spending, fell 18.5%. Global demand for products like cars and auto parts declined amid strict closures in many major cities abroad, and the number of inbound visitors declined due to strict restrictions on international travel to slow the spread of virus.
  • Meanwhile, imports posted a relatively small decline of 0.5%, as strong imports from China helped offset lower imports from the United States and European countries.
  • Spending on private investment, another key pillar of domestic demand, fell 1.5%, while private residential investment fell 0.2% as the pandemic increased uncertainty about the business outlook.
  • Public investment increased by 1.2%, supported by spending on infrastructure construction to prepare for natural disasters in the future, while public spending fell by 0.3%.
  • In nominal terms, or without adjusting for price changes, the Japanese economy contracted 7.4% during the quarter, or 26.4% annualized.
  • Japan last experienced a GDP contraction for three consecutive quarters, from October-December 2010 to April-June 2011, due to weak private consumption and a massive earthquake and tsunami that devastated the northeast region of Japan in March 2011.
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