Japan braces for worst postwar slump as pandemic tips economy into recession

Tuesday, 19 May 2020 00:00 - - {{hitsCtrl.values.hits}}

Pedestrians wearing protective face masks, following the coronavirus disease (COVID-19) outbreak, walk past a show window of a department store in Tokyo, Japan - Reuters

TOKYO (Reuters): Japan’s economy slipped into recession for the first time in 4-½ years in the last quarter, putting the nation on course for its deepest postwar slump as the coronavirus crisis ravages businesses and consumers.

Monday’s first-quarter GDP data underlined the broadening impact of the outbreak, with exports plunging the most since the devastating March 2011 earthquake as global lockdowns and supply chain disruptions hit shipments of Japanese goods.

Analysts warn of an even bleaker picture for the current quarter as consumption crumbled after the government in April requested citizens to stay home and businesses to close, intensifying the challenge for policymakers battling a once-in-a-century pandemic.

“It’s near certainty the economy suffered an even deeper decline in the current quarter,” said Yuichi Kodama, chief economist at Meiji Yasuda Research Institute. “Japan has entered a full-blown recession.” The world’s third-largest economy contracted an annualised 3.4% in the first quarter, preliminary official gross domestic product (GDP) data showed, less than a median market forecast for a 4.6% drop.

The slump came on top of an even steeper 7.3% fall in the October-December period, with the consecutive quarters of contraction meeting the technical definition of a recession. Japan last suffered recession in the second half of 2015.

The coronavirus, which first emerged in China late last year, has ravaged the global economy as many nations went into strict lockdowns to curb the outbreak that has so far killed over 310,000 people worldwide. The pandemic has been massively disruptive on supply chains and businesses, particularly in trade-reliant nations such as Japan.

Indeed, the fallout of the virus on corporate Japan was telling with exports diving 6.0% in the first quarter, the biggest decline since April-June 2011.

“Exports to China began to fall in February, followed by a wave of slumping shipments to Europe and the United States,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Exports were also hurt by slumping inbound tourism,” which counts as a drop in non-residents’ purchases of Japanese services, he said.