Japanese economy shrinks at record pace as pandemic hits spending

TOKYO (Reuters) – Japan was hit by its biggest economic contraction on record in the second quarter when the coronavirus pandemic burned businesses and consumer spending, keeping policymakers under pressure for bold action to prevent the recession from escalating.

While the economy is recovering from the doldrums after lockdowns were lifted in late May, many analysts expect that any rebound in July-September growth will be modest, as a renewed rise in infections retains consumers’ stock market strings.

Gross domestic product (GDP) shrank annually to 27.8% in April-June, government data showed on Monday, marking the largest decline since similar data were available in 1980.

It was the third straight quarter of contraction and slightly larger than the median forecast for a 27.2% drop.

“The large decline can be explained by the decline in consumption and exports,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“I expect growth to be positive in the July-September quarter. But worldwide, handball is sluggish everywhere except for China. ”

Private consumption, which accounts for more than half of Japan’s economy, fell 8.2% for the quarter, when measures taken to prevent the spread of the virus kept consumers at home.

The drip, which exceeded analysts’ forecast of a 7.1% fall, was the largest quarterly decline on record.

Capital expenditures fell 1.5% in the second quarter, less than a median forecast for a fall of 4.2%.

External demand, as exports minus imports, shook a record 3.0 percentage point off GDP as the pandemic dampened global demand, the data showed.

Japan has deployed massive fiscal and monetary stimulus to escalate the blow of the pandemic, which hit an economy already suffering from last year’s increase in sales taxes and the US-China trade war.

While the economy has reopened after the government lifted state of emergency measures at the end of May, a resurgence in infections wants the prospects for business and household spending.