Japan Sinks Into a Recession With Worst Yet to Come
Japan’s economy plunges into recession, bringing the country’s financial performance back to World War II levels.
First-quarter GDP data on Monday confirmed the widening negative effects of the pandemic. Exports fell more than after the devastating earthquake in March 2011.
Analysts predict an even gloomier picture for the current quarter as consumption collapsed in April and businesses shut down due to government restrictive measures.
«The economy almost certainly experienced an even deeper decline in the current quarter. Japan has entered a full-blown recession», – said the economist Yuichi Kodama.
The world’s third largest economy contracted at an annualized rate of 3.4% in the first quarter. Preliminary official data on gross domestic product showed that this is less than the average forecast of the market, which expected a fall of 4.6%.
The pandemic is having a huge devastating impact on production supply chains and businesses, especially in trade-dependent countries such as Japan.
The impact of the virus on corporate Japan hit exports, which fell 6.0% in the first quarter, the largest decline since 2011..
«Exports to China began to fall in February, followed by a wave of declining supplies to Europe and the United States.», – said the chief economist of the Norinchukin Scientific Research Institute Takeshi Minami.
Exports have also suffered from the decline in inbound tourism..
Even the world’s largest manufacturers in the country have not escaped the massive impact of the pandemic. Toyota Motor Corp says it will cut production of cars by 122 thousand units in June and expects 80% decrease in operating profit for full year.
Analysts expect Japan’s economy to contract at an annual rate of 22% in the current quarter, a record decline. Moreover, the pressure on production in the country is only increasing, since a nationwide state of emergency was declared in April amid an expanding pandemic..
Despite the fact that this regime was lifted for most regions last week, in a number of major cities, including Tokyo, the extraordinary provision is still in force.. Japan has reported 16,337 coronavirus cases and 756 deaths to date.
Private consumption, which accounts for more than half of Japan’s economy, fell 0.7% in Jan-Mar, 1.1% less than the market forecast, as robust demand for basic necessities partially offset the sector’s declines..
All this creates tension in the labor market.. Unemployment rises to its highest level in a year in March, while job availability sags to more than a three-year low.
The government has already announced a record $ 1.1 trillion stimulus package. Prime Minister of Japan Shinzo Abe promised to prepare a second financial support package in May to cushion the economic blow from the outbreak.
However, many analysts warn that aid is too small and the speed of delivery is too slow..
«Recovery will be slower than many expect. It will take the country at least several years to get out of this crisis.», – said Martin Schultz, Chief Economist of Fujitsu.