Japan is likely on the road to the worst postwar economic fall due to the coronavirus pandemic in the second quarter of 2020.
The preliminary official first-quarter gross domestic product (GDP) data showed the impact of the outbreak with exports slumped the most since March 2011 after the devastating earthquake. Japan’s economy contracted by 3.4% year-on-year.
The drop was still better than the median market forecast for a 4.6% slump.
The first quarter fall followed the 7.3% downturn in the last quarter of 2020 due to the increase in sales tax. This raised the possibility of a recession, which the country last had in the second half of 2015.
In the first quarter, exports tumbled by 6.0%, due to the fall in shipments to the country’s biggest trade partners such as China, the US, and Europe starting February as the mentioned countries were started to get hit by the coronavirus. The inbound tourism also fell.
Private consumption dipped by 0.7%, which was better than analysts’ expectation of a 1.6% fall. The impact of the outbreak on the services spending was partially offset by the strong demand for daily necessities.
Capital expenditures edged down by 0.5% in the period, following the 4.8% contraction in the previous quarter.
Domestic demand shed 0.7% while external demand dipped by 0.2%. The readings affected the labor market, as March’s unemployment rate was the highest in a year. Job availability contracted to the lowest in more than three years.
Previously, the Bank of Japan (BOJ) had expanded stimulus for the second month in a row in April. Tokyo has also announced a new record-high USD1.1 trillion stimulus package to mitigate the impact of the outbreak on the economy.
However, some analysts opined that the government’s supports were a bit too late. The recovery might be taking slower than expected as the implementation is typically very slow.
Economist Martin Schulz of Fujitsu commented, “It will take the latter half of the second quarter and the third quarter for government stimulus to kick in.”
He estimated that Japan would take at least two years to recover from this crisis.
