Japan’s Economy Falls into Recession as Crisis Take a Toll on Trade

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SWITZERLAND, MAY 15 – Japan, the world’s third-largest economy has plunged into its first recession in five years after the coronavirus crisis hit demand for exports.

According to official data released on Monday, the nation’s economy contracted by 0.9 percent in the first quarter.

The country’s export-led economic model, built on manufacturing, has suffered worse than most because of its dependence on China, which was first to see an outbreak in January, followed by the United States and Europe.

The drop in gross domestic product followed a 1.9-percent decline in the fourth quarter of 2019 as a tax hike and typhoons hit Japan hard — even before the pandemic shut down much of the economy.

A recession is defined as two consecutive quarters of negative GDP growth and some analysts predicted the Japanese economy would suffer worse as the effects of the coronavirus become clear.

“We expect the worst is yet to come, with the state of emergency in Japan and the severity of the pandemic among Western nations continuing to derail the Japanese economy,” said Naoya Oshikubo, senior economist at SuMi TRUST.

Nevertheless, the first-quarter result was slightly better than economists had forecast, with expectations for a 1.1-percent decline.

Japan has been hit less hard than most advanced economies by the coronavirus, with just over 16,000 cases in the whole country and around 750 deaths.

However, authorities were concerned there could be an explosive spike — especially in the densely populated capital Tokyo — and urged people to stay indoors and businesses to shut down.

Prime Minister Shinzo Abe declared a state of emergency that was lifted last week for most of the country but kept in place for economic powerhouse regions Tokyo and Osaka.

“Personal consumption has been the main casualty of the COVID-19 pandemic as consumer spending has been greatly affected by this due to people staying at home,” Oshikubo said. 

“But uncertainty stemming from the spread of the virus has also hit private capital investment as companies curtail their expenditure programmes,” added the expert.

In an attempt to mitigate the worst effects of the crisis, Abe has pledged to give every citizen a cash handout of 100,000 yen ($930).

The handout was part of a package of stimulus measures worth around $1 trillion to protect jobs, bolster the medical sector and ease the pain for working families.

Tourism has dropped by as much as 90 percent, industry and trade have ground to a halt and the virus also forced the postponement of the Tokyo 2020 Olympics that was seen as providing a boost to the economy.

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