Japan's growth drops amid pandemic, worse times likely ahead

Japan's growth drops amid pandemic, worse times likely ahead”

Monday's first-quarter gross domestic product (GDP) data underlined the broadening effect of the outbreak, with exports plunging the most since the devastating March 2011 natural disaster as global lockdowns and supply chain disruptions hit shipments of Japanese goods.

The world's third-largest economy shrank an annualized 3.4% in the three months through March from the previous quarter as exports slid and social distancing crimped consumer spending, official figures showed Monday, confirming the second-straight quarterly contraction.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said the second quarter would be "significantly worse", forecasting a decline of around six to seven per cent.

And though the virus started weighing on the country in early 2020, analysts warn that Japan's first quarter does not capture the full effect of the pandemic.

In the final quarter of 2019, the economy shrank 7.3 percent, owing mainly to a consumption tax rate hike from 8 percent to 10 percent in October previous year, but also due to a powerful typhoon wreaking havoc on the country during the period.

The last time Japan suffered recession was in the second half of 2015.

The coronavirus is wreaking havoc on the global economy with an estimated cost of up to $8.8tn (£7.1tn). The pandemic has been massively disruptive on supply chains and businesses, particularly in trade-reliant nations such as Japan.

Trade was also significantly impacted by the virus, with the export of goods and services plunging 6.0 percent, with demand for cars and auto parts marking a significant drop, the data showed.

The shakeout in global trade was highlighted in the recent March data, with Japan's exports slumping the most in almost four years due to plunging US-bound shipments including cars.

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The nation's major globe-trotting manufacturers weren't spared the pandemic's sweeping impact either.

Japanese Economic Revitalization Minister Yasutoshi Nishimura told a press conference on Monday that the downside effects of the coronavirus pandemic on Japan's economy are expected to deteriorate further.

In recent days, infection rates have plunged and the government last week lifted its state of emergency for 39 of the 47 prefectures, although Tokyo and other dense economic centers still remain under heavy restrictions. Japan has so far reported 16,337 coronavirus cases and 756 deaths.

While that is slightly better than the 1.2 per cent drop forecast in a Refinitiv poll of analysts, it is still the second straight quarter of declines - meaning Japan has now entered recession.

Capital expenditure fell 0.5 percent in the first quarter after plummeting 4.8 percent in October-December past year, the GDP data showed, suggesting that uncertainty over the outlook is discouraging companies from boosting spending.

Taken together, domestic demand knocked 0.7 percentage point off GDP growth, while external demand shed 0.2 point.

All of this has put a strain on the labor market. The jobless rate in March rose to its highest in a year, while job availability slipped to a more than three-year low.

Japan is extremely valuable to the economic damage from the ongoing outbreak.

The government has come up with a rescue package of almost 108 trillion yen ($1 trillion), and plans more, including aid to small businesses and cash handouts.

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