Japan has just announced a report showing the lowest GDP on record, as the country’s economy shrank 7.8% in the Q2 compared to the Q1, and the figures concluded into a decline of 27.8% on an annualized basis, the lowest economic performance since 1955. The numbers also show a third-consecutive quarter of contraction since Q4 2019. Japan's last GDP shrinkages for three straight quarters are from Q4 2010 through Q2 2011, as the contraction affected by weak private consumption and the massive earthquake-tsunami that devastated the country’s northeastern areas in March 2011.
The country’s consumption, which makes up more than half of Japan’s economy, declined by 8.2% in Q2 as business slumped under a six-week national emergency lockdown started on April 7 for Tokyo and 6 other prefectures, later for the entire country, and lasted until late May. With spending on shopping, eating out and trips significantly cut during the stay-at-home requests, the decline is inevitable. The slid on customer spending also records the steepest, surpassing Q2 2014’s 4.8% drop after the consumption tax increased to 8% from 5% that year.
External demand also declined by 3% off GDP on the Q2 along with sluggish global trade. Demand for products such as cars and autoparts was slumped during the global lockdown in many major cities in many nations. Exports of services and goods, including tourist spending, plunged by 18.5% as the number of inbound visitors hit rock-bottom as international travel restrictions were implemented to curb the spread of coronavirus. At the same time, imports booked a relatively limited drop of 0.5%, as China solid imports helped counteract the decline in imports from Europe and the United States. Private capital expenditure, another key pillar of domestic demand, down as much as 1.5% while private residential investment slipped down by 0.2%.
In June, optimism spiked as the economy felt reached its worst point, and recovery was starting as finance minister Taro Aso told the parliament that the country had succeeded throughout the hit-bottom and strong recovery depended not just on domestic conditions but international development. The decline heightened Japan's economic struggle as the effect of a 10% tax hike last year along with the damaging typhoon at the end of last year. Early 2020, the economy has also been affected by the US-China trade friction.
Noriko Hama, a professor at Doshisha Business School, part of Doshisha University said that the situation is disheartening as the policy response is still lacking, and the country needs a broad, cautious and wise response to this circumstances, which Minister Abe and companies lack when talks about the way they handled the situation. The Japanese government had started in mid-July with a subsidized plan to boost domestic travel, as the new cases started surging.
This August, Japan has recorded more than 19,000 new infections, which accounted around third of the total number of cases throughout the entire pandemic, and on Monday, August 17, the country’s Ministry of Health, Labor and Welfare announced a total of 55,426 positive cases and 1,101 deaths.
Economists have been alerting that two earlier economic stimulus packages and numerous relief measures adopted there will expire in September, therefore poses risk to the small-medium enterprises composing most of the country’s economy. But despite economic warnings, Japan’s Nikkei 225 stock index (^N225) in recent weeks has remained strong, as it rebounding to near levels seen at the beginning of the year before the pandemic crisis hit.
Many analysts predicted the nation's economy will rebound by over 10% in the Q3 from Q2 on an annualized basis, after the gradual continuation in economic activity after the reopening. But they believed it would take at least a few years for the economic bounce back to pre-pandemic level, as the latest figure exceeding the previous record of annualized real 17.8% contraction happened in Q1 2009, and below the private-sectors economists forecast of 26.59% contraction.
