Daily Management Review

Japan Could Go Into Recession, Economy Contracts In Q4, Amid Coronavirus Threat


Japan’s economy could be headed for a recession as it reported a shrinking of the economy in the quarter ended December 31 at the fastest pace in almost six years and the impact of the deadly coronavirus outbreak in China still impending up on it in the current quarter.
The virus outbreak has already disrupted global supply chains and because of closure of factories and manufacturing units in China since the Lunar New year Holiday because of fear of spreading of the virus. Many industries such as the global auto industry have been forced to take a hit by suspending manufacturing operations outside of China because of a shortage of supply from China.  
If the virus Is not contained within the next few months, it can have a significant impact on Japan’s economy say analysts, even as the  fallout from the epidemic is widening – impacting output and tourism.
“There’s a pretty good chance the economy will suffer another contraction in January-March. The virus will mainly hit inbound tourism and exports, but could also weigh on domestic consumption quite a lot,” said Taro Saito, Executive Research Fellow at NLI Research Institute.
“If this epidemic is not contained by the time of the Tokyo Olympic Games, the damage to the economy will be huge,” he said.
In the October-December period, there was 6.3 per cent shrinkage at an annualized rate in the gross domestic product (GDP) of Japan, according to the latest figures from the Japanese government. That rate of shrinking is much faster than a median market forecast for a 3.7 per cent drop. It is also the first shrinking for in the last five quarters.
This drop in growth is also the highest since the second quarter of 2014 – the quarter when the Japanese government implemented a sales tax hike in April of that year which significantly hit consumption.
A technical recession could happen when there are two consecutive quarters of contraction and this can be a reality for Japan as the current quarter has been mired by the coronavirus which has affected the entire region including Japan. .
The growth rate for Thailand was the slowest in five years while its economic growth projections for 2020 was cut down by Singapore. In China, Home price growth was the slowest in nearly two years.  
The prospect of a recession saw a tumbling of Japanese stocks and a 0.7 per cent drop was recorded by the benchmark Nikkei average.
There was a higher than expected shrinking of domestic private consumption in Japan at 2.9 per cent –the first drop in five quarters, as it was weighed down by the hike in sales tax in October last year and a hit on the sales of winter items because of unusually warm weather.
There was a 3.7 per cent drop in capital expenditure during the fourth quarter which was much faster than a median forecast for a 1.6 per cent fall. Data showed that this was the first drop in three quarters.