Daily Management Review

Latest Data Indicates Further Deepening Of Japan's Recession


05/29/2020




Latest Data Indicates Further Deepening Of Japan's Recession
There was a deeper than expected fall in the factory output in Japan in the month of April which was coupled with a plunge in retail sales which was deepest in more than 20 years. This was because of the impact of the novel coronavirus pandemic on the country’s economy as both foreign and domestic demand plunged for the cars and other goods that are manufactured in the country.
 
For the current quarter, analysts now expect a deepening of the recession that the third-largest economy of the world has been suffering from since six months to March because of the bad numbers of April. The government had imposed lockdowns which had disrupted supply chains and consumers were forced to stay back at home.
 
There was a 9.1 per cent drop in the factory output in Japan in April compared to the previous month, showed official data on Friday. That marked the largest drop in the numbers since comparable data became available in 2013. This was because of sharp declines in the production of automakers and iron and steel manufacturers.
 
"Output will probably pick up from June onwards but it will be necessary to remain on guard for a second wave (of coronavirus infections)," said Takeshi Minami, chief economist at Norinchukin Research Institute. "The pace of a rebound will likely continue to be sluggish," Minami added.
 
In April, there was a one third drop in automaker production month on month which prompted the Japanese government to downgrade its description of overall production to "decreasing rapidly" compared to just "decreasing" status that had been previously attached to the number. That was also a first for the economy since November 2008.
 
In another set of data, the pace of fall in retail sales was the fastest since March 1998 because of the closure of service-sector businesses such as restaurants because of the nationwide state of emergency imposed ot prevent the spread of the novel coronavirus pandemic.
 
There was 13.7 per cent year on year drop in retail sales in April which was because of a very heavy drop in demand for general merchandise, clothing and vehicles.
 
Japan’s economy technically entered a recession in the first quarter for the first time in four and a half years.
 
Even before the outbreak of the coronavirus pandemic, the Japanese economy was already trying to ward off weak demand following the raising of sales tax throughout the country in order to reduce the debt burden of the country.
 
The worsening conditions in the jobs market of the country were reflected in other government data released on Friday. There was a 2.6 per cent growth in job losses in April which was the highest since 2017. That unemployment rate was however much lower than some other developed countries where rate of unemployment is now inching close to the 1930’s depression-era levels.
 
The job losses is mostly concentrated in the service sector as opposed to automakers, said analysts. 
 
"If demand around cars doesn't recover, there's a possibility employment conditions in the manufacturing sector will worsen more going forward," Minami said.
 
"The huge fall in industrial production and retail sales in April support our below-consensus forecast that the economy will contract by 12 percent quarter on quarter this quarter. The unemployment rate is also set to approach the 4 percent we have pencilled in," said Tom Learmouth, Japan Economist at research firm Capital Economics. "But with the spread of the virus now under control, the economy should bounce back in the second half of the year," Learmouth added.
 
(Source:www.reuters.com)