Daily Management Review

Japanese Economy Has Entered A Technical Recession With Worse Expected


Japanese Economy Has Entered A Technical Recession With Worse Expected
The coronavirus pandemic has pushed the Japanese economy into a recession and analysts predict that things are going to get worse for the economy. 
According to government data released Monday, in the January to March quarter, there was a 0.9 per cent shrinking of the third largest economy of the world compared to the previous quarter. While the contraction was still better than a contraction of 1.2 per cent that was predicted for the economy in a Refinitiv poll of analysts, the first quarter of the current year marked the second straight quarter that the Japanese economy had contracted which has technically pushed the economy into a recession.
At an annualized rate, the drop was 3.4 per cent which was more dramatic.
Even before the novel coronavirus pandemic, there was intense pressure on the economy of Japan. Late last year, there was a contraction in economic activity partially because of the impact of a hike in sales tax in the country as well due to the impact of Typhoon Hagibis, a powerful storm that hit the country last fall.
The first quarter performance of the Japanese economy does not adequately reflect the full impact of the novel coronavirus pandemic, warned analysts, even though the pandemic hit the country in the early part of 2020.
"The sharp fall in output in the first quarter suggests the spread of the virus had already dealt a significant blow to economic activity in March," wrote Tom Learmouth, Japan economist for Capital Economics, in a research note Monday. Predicting a 12 per cent quarter on quarter contraction in the Japanese economy, he said that the Japanese economy was poised to face "much worse" time in the second quarter.
During the first quarter, there was a 0.7 per cent drop in private consumption ion the country which accounts for more than 50 per cent of the GDP of Japan. That drop in consumption was for the period before the government had imposed a state of emergency which resulted in closure of restaurants and retail stores throughout the country.
"That's just the tip of the iceberg," Learmouth said. "April and May will have been far worse."
During the quarter, there was also a 6 per cent slump in exports, which contributes about 16 per cent of the Japanese economy. There was stagnation in demand from most of the major trading partners of the country. This fall in exports for the highest quarterly fall for that sector since 2011 in which year the country and its economy was hit by a massive earthquake and tsunami.
On the other hand, a stimulus package for the economy worth about $1 trillion has also been announced by the Japanese government aimed at cushioning the hit to economy because of the viral pandemic. The stimulus package is about 20 per cent of the annual output of the country. It is predicted that the government will make more announcements and more measures before the end of the month.