Japan slides into recession with forecasts of worse to come

Japan dived into its first recession since 2015, according to official data Monday, with the world's third-largest economy shrinking by 0.9 percent in the first quarter as it wrestles with the fallout from the coronavirus.

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.

'Significantly worse'

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.

According to the details of the GDP report, private consumption dropped 0.7 percent quarter-on-quarter, with both household consumption and corporate investment slipping 0.8 percent and 0.5 percent respectively.

But as the coronavirus pandemic battered the global economy, Japanese exports were the hardest hit, falling by six percent compared to the previous quarter.

The full impact of the coronavirus on Japan's economy has still to be felt and economists are bracing for a catastrophic second quarter.

Oshikubo said his organisation was forecasting an eyewatering 10.2-percent plunge in the second quarter, which would be the worst since the 2008 financial crisis.

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

"As to the question of when the economy will pick up, it all depends on the number of infected and when the virus fades out."