Japan has suffered its worst quarterly GDP contraction in more than five years, with a tax hike and a deadly typhoon taking a toll on the world’s third-largest economy.
GDP in the three months to December last year shrank 1.6 percent from the previous quarter, even before the COVID-19 outbreak in China hit Japan, official data showed yesterday.
The quarter was marked by a rise in consumption tax from 8 percent to 10 percent, as well as Typhoon Hagibis, which killed more than 100 people and caused widespread flooding.
Economists were braced for a contraction of about 1 percent, but had not expected such a poor figure, with Takeshi Minami, chief economist at Norinchukin Research Institute, saying that it was “quite an undershooting.”
“There was a hit from natural disasters, but consumer sentiment was particularly weak after the tax hike, despite government measures to ease the impact,” he told reporters.
The data snapped four quarters of growth and was the biggest contraction since the second quarter of 2014, when the economy shrank 1.9 percent.
That quarter followed a hike in the sales tax from 5 percent to 8 percent and the latest slump also appears to have been affected by a rise in consumption tax to 10 percent that came into effect on Oct. 1 last year.
Private consumption was hard hit, dropping by 2.9 percent — the first fall in five quarters.
Expenditure on factories and equipment decreased 3.7 percent, despite investment getting a boost from cashless-payment systems that allow consumers to alleviate the consumption tax hike.
Economists are carefully watching to see what effect the outbreak will have on the economy, as it hits Japanese companies’ manufacturing activities and tourism.
Japan has only a “bleak” prospect of returning to growth in the first quarter of this year, Minami said.
Private consumption would likely pick up from the October-to-December quarter, but how much it will recover in the coming months would depend on the spread of the virus, he said.
“Also, exports might struggle, as delays of parts shipments from China could disrupt supply chains,” Minami said.
It was “possible” that the economy would shrink for a second consecutive quarter, the technical definition of a recession, he added.
Japanese Minister of Health, Labor and Welfare Katsunobu Kato on Sunday urged the public to avoid crowds and “non-essential gatherings,” including commuter trains, to prevent the virus spreading.
The government is to allocate ¥15.3 billion (US$139 million) to fight the economic effects of the virus, including measures to enhance airport inspections and testing capacity.
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