Japan’s economic growth plunged into recession in the first quarter as the COVID-19 pandemic squelched production, exports and spending, and fears are growing that worse times might lie ahead.
The Japanese Cabinet Office yesterday reported a 3.4 percent drop in the annual pace of seasonally adjusted real GDP for the January-March period. The annual pace gives what the rate would be when continued for a year. For just the quarter, the drop was 0.9 percent.
Exports dived 21.8 percent. Private residential investments slipped nearly 17 percent and household consumption fell 3.1 percent.
Analysts say things are expected to get worse as the world’s third-largest economy endures its biggest challenge since World War II.
Japan is in a technical recession, defined as two quarters straight of contraction, as its economy contracted 1.9 percent in the fourth quarter last year. Growth was flat in the July-to-September quarter last year and was a mere 0.5 percent growth in the previous quarter, according to the latest numbers.
Japan is extremely vulnerable to repercussions from the pandemic given its dependence on trade with China — where the virus emerged — and the US, which has been hit hard.
Travel, tourism and trade with those countries and others have languished amid shutdowns aimed at fighting the disease.
Manufacturers that are pillars of Japan’s economy, such as Toyota Motor Corp, have reported dismal financial results. Some companies have been unable to provide forecasts for this fiscal year. Profitability is nosediving as people economize and stay home. Production at some plants has halted.
The Japanese government has a rescue package of nearly ￥108 trillion (US$1 trillion) and plans more, including aid to small businesses and cash handouts.
More than 16,000 people in Japan have been infected with the virus and more than 700 have died, but those numbers are relatively low given it has the world’s oldest population and densely populated cities.
Japan eased its state of emergency last week for most of the country, although hotspots like Tokyo are maintaining restrictions. While many places are starting to reopen, normal operations and a recovery in consumption are not expected any time soon.
Robert Carnell, regional head of research Asia-Pacific at ING Bank NV, said that the damage to the private sector would continue, even as public demand picks up, helped by government aid.
“So even though the state of emergency has been criticized as being a halfhearted response to the pandemic, compared with many other nations, it has still resulted in a substantial reduction in economic activity, and will weigh on growth,” Carnell said.
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