Japan’s economy suffered its worst quarter on record as the country reeled from the hit to consumer spending caused by the coronavirus pandemic.
The Japanese government said Monday that the world’s third-largest economy contracted by 7.8% in the second quarter, translating to an annualized rate of decline of 27.8%.
The contraction was sharper than the previous record of minus 4.8% in January-March 2009 after the global financial crisis and worse on an annualized basis since modern records started in 1980.
Consumption, which accounts for more than half of Japan’s economy, slumped 8.2% for the quarter as businesses across the country shuttered during a six-week national coronavirus emergency in April and May. Exports, which include spending by foreign tourists in Japan, fell 18.5%.
But economists noted that Japan’s economy had entered a recession even before the pandemic and that, even though its second quarter wasn’t as bad as peers such as the U.S. and U.K., it could also be facing a long road to recovery.
The second-quarter decline “marks the third consecutive quarter growth has contracted, underscoring Japan’s vulnerability to further downside shocks,” Oxford Economics wrote in a note.
In response to the crisis, Prime Minister Shinzo Abe’s government approved 234 trillion yen ($2.2 trillion) in stimulus spending, equivalent to almost 40% of Japan’s annual output. Some economists see a rebound of more than 10% on an annualized basis in the third quarter, reflecting the gradual resumption of economic activity.
“We’ll get the economy back on a growth track from rock bottom in April and May, led by domestic demand,” economic revitalization minister Yasutoshi Nishimura said.
But coronavirus infections began to rise again in July and Mizuho Securities economist Toru Suehiro told The Wall Street Journal that consumption would weaken again in the final quarter of the year as more people lose their jobs and companies scale back winter bonuses.
“The top priority for the Abe government should be to bring the coronavirus outbreak under control so that normal economic activity can be resumed,” Yuichi Kodama, chief economist at Meiji Yasuda Research Institute, told Nikkei Asian Review.