Japan Economy Shrinks Record 7.8% in April-June

Japan's economy shrank a whopping 7.8% in the April-June period, the biggest recession in modern nation history, according to figures from Monday, as the coronavirus deepens the country's economic woes.

The downturn from the previous quarter was marginally weaker than the forecasts, but also far less serious than the decreases observed in many other developed economies, reports BSS.

Yet it is Japan's worst economic contraction since comparable data became available in 1980, overshadowing the brutal impact of the 2008 global financial crisis.

So some researchers have called it the worst collapse since the data started to be collected in 1955, but reform in estimation methodology in 1980 complicates the relation.

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 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,” Yoshiki Shinke, chief economist at Daiichi Life Research Institute, wrote in a note before the official release of the data.

Coronavirus deepens recession

The economy collapsed an annualized 27.8 percent, with domestic consumption dipping 4.8 percent and exports of products and services plummeting 18.5 percent.

Moreover, imports decreased by just 0.5 percent, which is better than the 4.2 percent decrease shown in the January-March period.

For the past year to March 2020, Japan’s real GDP came to 0.0 percent, compared with a 0.3 percent 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 removed in June, and the government has been hesitant to reintroduce sanctions, even though diseases are increasing again.

Some recovery was seen in Japan after the government lifted the state of emergency, but it was not enough to compensate for the severe falls in April and May, Shinke said.

Hope for recovery

The contraction in April-June compares to consumer forecasts of a contraction of 7.6 percent, the median estimate of major economists polled by the Nikkei business journal.

The result was less extreme than the quarter-on-quarter downturn in several other global economies, including the United States, which declined by 9.5 percent, and Germany, which fell by 10.1 percent in the same period.

Japan imposed looser restriction against the coronavirus and fared better than its industry 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 numbers, economists said that the economy might now anticipate a turnaround, with Oshikubo predicting 2.6 growth in the July-September portion.

“The recovery will likely be driven by rising domestic and external demand in addition to normalization in Western nations as many countries’ lockdown measures are lifted,” Oshikubo said.

Private consumption, which plummeted 8.2% in the April-June period, is projected to gain all Japanese citizens from a government stimulus payout of 100,000 yen ($939).