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The Japanese economy is shrinking at a record rate at its fastest pace as it fights the coronavirus pandemic.
The world’s third largest economy saw gross domestic product (GDP) fall by 27.8% in the quarter from April to June, compared to the same period last year.
Japan was already struggling with low economic growth before the crisis.
The figures released on Monday are a strong reminder of the severe financial impact that countries around the world have.
Japan slipped into recession earlier this year after two consecutive quarters of economic contract.
The latest data for the quarterly period from April to June were the largest decline since similar figures were available in 1980 and were slightly larger than analysts had expected.
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One of the main factors behind the downturn was a sharp decline in household consumption, which accounts for more than half of Japan’s economy. Exports have also fallen sharply as global trade is hit by the pandemic.
The latest figures are the third consecutive quarter of declines for the Japanese economy, and represent their worst performance since 1955.
The downturn puts further pressure on a Japanese economy that struggled last year with the effects of a 10% increase in sales tax, along with typhoon Hagibis.
Looking back on a bounce
Japan is the latest in a string of Asian economies to report drastically lower second-quarter GDP data.
That should come as no surprise: no one escapes the reach of the pandemic, and even if no strict lockdowns were put in place, people generally stayed inside and did not spend any money.
This has a knock-on effect on business earnings, as customers buy less and thus businesses earn less.
It is a cruel cycle which in turn leads to a lack of confidence in hiring prospects – which means that there is also nervousness about job prospects. That all appears in the figures today.
Still, now it’s time to look to the future and to the possibility of a handball.
Japan is likely to do better than other economies according to some analysts. Capital Economics says that even though the world’s third largest economy is in the midst of a second wave of infections, its healthcare systems are not overwhelming, and new cases are beginning to decline. The research house says it expects third-quarter GDP to jump back – and continue through to next year.
beam of light
After the record contraction, most analysts expect Japan’s economic growth to pick up in the coming months.
Prime Minister Shinzo Abe has introduced massive incentive packages aimed at helping cushion the pandemic.
While Japan picked up state of emergency measures in late May, concerns remain that a recent spike in infections could resume business spending and household spending.
China, the second largest economy in the world, also offers some cause for hope. The economy recovered in the period April to June, with growth of 3.2%.
