Japan’s economy has entered recession for the first time in four and a half years, GDP data showed on Monday, putting the nation on the path to its deepest post-war recession as the coronavirus crisis weighs heavily. on businesses and consumers.
The world’s third largest economy shrank for the second consecutive quarter in the three months leading up to March, heightening the challenge for policymakers battling a pandemic once in a century that has already caused widespread disruption.
Gross domestic product (GDP) contracted 3.4% year-on-year in the first quarter, as private consumption, capital spending and exports fell, preliminary official data showed after a revised decline of 7 , 3 during the period from October to December, meeting the technical definition of a recession.
The median market forecast a 4.6% contraction in the first quarter.
The last time Japan experienced a recession was in the second half of 2015.
“It is almost certain that the economy has suffered an even deeper decline in the current quarter,” said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute. “Japan has entered a full-blown recession.”
The coronavirus, which first appeared in China at the end of last year, has ravaged the global economy as many countries have implemented severe closures to limit the epidemic that has so far killed more than 310,000 people worldwide. The pandemic has disrupted supply chains and businesses massively, particularly in trade-dependent countries like Japan.
Private consumption, which represents more than half of the Japanese economy of $ 5,000 billion, fell 0.7%, against a 1.6% drop expected by economists.
This marked the second consecutive quarter of decline, as households were hit by the double blow from the coronavirus and an increase in sales tax to 10% from 8% in October last year.
The impact of the virus on Japanese companies is revealing, with GDP data showing that exports contracted sharply by 6% in the first quarter.
The collapse in world trade was highlighted in recent data from March, as Japanese exports fell the most in almost four years due to the drop in shipments to the United States, including cars.
Capital spending fell 0.5% in the fourth quarter, compared with a median forecast of 1.5% decline and marked the second consecutive quarter of decline, according to the data.
Overall, domestic demand depressed GDP growth by 0.7 percentage points, while external demand fell 0.2 points.
All of this put a strain on the job market. The unemployment rate in March reached its highest level in a year, while job availability fell to a low of more than three years.
Increasingly deeper crisis
Conditions are likely to have worsened in Japan in the current quarter after Prime Minister Shinzo Abe in April declared a state of emergency nationwide amid increased coronavirus infections.
The emergency, which prompted citizens to stay at home and close many businesses, was lifted on Thursday in most regions, but remained in effect for some major cities, including Tokyo.
Analysts polled by Reuters expect the Japanese economy to shrink 22.0% year-on-year in the current quarter, which would be the largest decline ever and highlights the collapse in activity which expected to experience the worst global recession since the Great Depression of the 1930s.
The government has already announced a record $ 1.1 trillion stimulus package, and the Bank of Japan widened the stimulus for the second consecutive month in April. Abe promised a second supplementary budget later this month to finance further spending measures to cushion the economic blow from the outbreak.
The country’s major globetrotter manufacturers have not been spared the drastic impact of the pandemic either.
On Friday, Toyota Motor Corp announced that it would cut vehicle production in Japan by 122,000 units in June, as lack of demand for new cars due to the coronavirus is prompting the automaker to keep its factories in limited operation. The automaker is preparing for an 80% drop in full-year operating profit, its lowest level in nine years.