Japan suffers first recession since 2015; expects worse to come

Tokyo

JAPAN dived into its first recession since 2015, according to official data released on Monday, with the world's third-largest economy shrinking by 0.9 per cent in the first quarter as it wrestles with the fallout from the novel coronavirus.

The drop in gross domestic product followed a 1.9 per cent decline in the fourth quarter of 2019 as a tax hike and typhoons hit Japan hard - even before the pandemic shut down much of the economy.

A recession is defined as two consecutive quarters of negative GDP growth and some analysts predicted the Japanese economy would suffer worse as the effects of the novel coronavirus become clear.

"We expect the worst is yet to come, with the state of emergency in Japan and the severity of the pandemic among Western nations continuing to derail the Japanese economy," said Naoya Oshikubo, senior economist at SuMi TRUST.

Nevertheless, the first-quarter result was slightly better than economists had forecast, with expectations for a 1.1 per cent decline.

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Japan has been hit less hard than most advanced economies by the novel coronavirus, with just over 16,000 cases in the whole country and around 750 deaths.

However, the authorities were concerned there could be an explosive spike - especially in the densely populated capital Tokyo - and urged people to stay indoors and businesses to shut down.

Prime Minister Shinzo Abe declared a state of emergency that was lifted last week for most of the country but kept in place for economic powerhouse regions Tokyo and Osaka.

"Personal consumption has been the main casualty of the Covid-19 pandemic as consumer spending has been greatly affected by this due to people staying at home," Mr Oshikubo said.

"But uncertainty stemming from the spread of the virus has also hit private capital investment as companies curtail their expenditure programmes," added the expert.

In an attempt to mitigate the worst effects of the crisis, Mr Abe has pledged to give every citizen a cash handout of 100,000 yen (S$1,326).

The handout was part of a package of stimulus measures worth around US$1 trillion to protect jobs, bolster the medical sector and ease the pain for working families.

Tourism has dropped by as much as 90 per cent, industry and trade have ground to a halt and the virus also forced the unprecedented year-long postponement of the Tokyo 2020 Olympics that was seen as providing a boost to the economy.

According to the details of the GDP report, private consumption dropped 0.7 per cent quarter on quarter, with both household consumption and corporate investment slipping 0.8 per cent and 0.5 per cent respectively.

But as the novel coronavirus pandemic battered the global economy, Japanese exports were the hardest hit, falling by 6 per cent compared to the previous quarter.

The full impact of Covid-19 on Japan's economy has still to be felt and economists are bracing for a catastrophic second quarter.

Mr Oshikubo said his organisation was forecasting an eyewatering 10.2 per cent plunge in the second quarter, which would be the worst since the 2008 financial crisis.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said the second quarter would be "significantly worse", forecasting a decline of around 6 to 7 per cent. "As to the question of when the economy will pick up, it all depends on the number of infected and when the virus fades out," he said. AFP