source: the economic times

Tokyo: The economy of Japan slipped into recession for the first time in the last four and a half years, as confirmed by the GDP data on Monday. The coronavirus crisis has taken a heavy toll on businesses and consumers and has therefore set Japan on the course for its deepest post-war recession.

As private consumption, capital expenditure and exports fell, the Gross Domestic Product(GDP) contracted to an annualized 3.4 percent in the first quarter, following a revised 7.3 decline in October- December period, which is the technical definition of a recession. 

The world’s third-largest economy has shrunk for the second consecutive quarter in the first three months of the year and has therefore intensified the challenge for the policymakers to battle a pandemic that occurs once in a century and which has already created widespread disruptions.

The contraction in the first quarter in the median market forecaster was 4.6%.

Japan had faced a recession in the second half of 2015.

Yuichi Kodama, chief economist at Meiji Yasuda Research Institute said, “It is almost certain that the Japanese economy has suffered a deeper decline in the current quarter, creating a situation of Recession in the country.” 

More than half of Japan’s $5 trillion economy is accounted for private consumption which has slipped to 0.7 percent against the 1.6 percent drop expected by economists. 

The coronavirus had emerged in the city of Wuhan, China last year and has now assumed the condition of a pandemic after affecting almost all the countries of the world and ravaging the global economy. It has claimed 3,10,000 lives so far. 

The pandemic has disrupted many supply chains and businesses especially in trade-reliant countries like Japan. 

The households in Japan were hit on both sides with the outbreak of coronavirus on one hand while a sales tax hike made the taxes 10% from 8% in October last year. 

The GDP data of Japan shows that exports contracted sharply by 6% in the first quarter which is a tell-tale of the virus’s impact.

Capital expenditure has fallen to 0.5% in the fourth quarter and has marked the second consecutive quarter of declines. 

Taken together, domestic demand has removed a 0.7 percentage point from the GDP growth. This has severely affected the labor market. 

It is expected that conditions have worsened in Japan in the current quarter after Prime Minister Shinzo Abe declared a nationwide set of emergencies in view of the increasing number of coronavirus infections.

The emergency urged the citizens to stay at home and many businesses to close. It has been lifted from many cities on Thursday but it continues to be in effect in big cities like Tokyo. 

Analysts expect Japan’s economy to shrink an annualized 22.0% in the current quarter. It will be the biggest decline on record and highlights the collapse inactivity which is expected to see the worst global slump since the Great Depression of the 1930s.

To overcome the situation, the government has already announced a record $1.1 trillion stimulus package. The Bank of Japan has expanded stimulus for the second straight month in April. Abe has promised his people a second supplementary budget in the latter part of this month to fund fresh measures to cushion the blow of the pandemic. 

Toyota Motor Corp on Friday said that it will reduce vehicle production in Japan by 122,000 units in June, because of the lack of demand for new cars resulting from the outbreak of the coronavirus.

~Jyotisha Ranjan



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