Japan’s economy in the April-June period shrank an annualized real 27.8 percent from the previous quarter, the sharpest contraction on record, as economic activity was restricted under a state of emergency during the novel coronavirus outbreak, government data showed Monday.
The preliminary data on gross domestic product, the total value of goods and services produced in the country, correspond to a 7.8 percent decrease on a seasonally-adjusted quarterly basis, marking negative growth for the third consecutive quarter, according to the Cabinet Office.
Comparable data are available since the April-June quarter of 1980. But a Cabinet Office official said the latest figure is considered the largest contraction on record, even dating back to 1955, the earliest point at which the government can track reference values.
Before the emergence of the pandemic, Japan’s economy was already on the back foot due to the U.S.-China trade spat and a 2 percentage point consumption tax hike last year. Damage to the economy widened during the pandemic after the central government declared a state of emergency in April.
Local governments asked residents to stay at home and nonessential businesses to suspend operations under the emergency declaration, which was first issued on April 7 for Tokyo and six other prefectures and for the entire nation later. It was lifted for all 47 prefectures by late May.
Many analysts have forecast that Japan’s economy will rebound by over 10 percent in the July-September period from the current quarter in real terms on an annualized basis, given the gradual resumption of economic activity after the end of the virus emergency.
Analysts believe it will take at least a few years for the economy to bounce back to its pre-pandemic level.
The latest figures, far exceeding the previous record of an annualized real 17.8 percent contraction in the January-March quarter of 2009 in the wake of the global financial crisis, was worse than the average forecast by private-sector economists of a 26.59 percent shrinkage.
Economic revitalization minister Yasutoshi Nishimura told a press conference that the “severe outcome” was due to the state of emergency, saying, “We’ll get the economy back on a growth track from rock bottom in April and May, led by domestic demand.”
Nishimura also said that government policies to support companies and households such as universal 100,000 yen ($940) cash handouts “underpinned the economy” and minimized the GDP contraction in the reporting quarter compared with other developed countries whose economies shrank an annualized real 30 to 60 percent.
Taro Saito, executive research fellow at the NLI Research Institute, said that Japan’s result would have been worse had it implemented hard lockdowns as seen in U.S. and European cities, especially as the Japanese economy had slumped even before the pandemic.
The Japanese economy shrank an annualized 7.0 percent in the October-December period, hit by the consumption tax hike from 8 percent to 10 percent in October and the fallout from a devastating typhoon. In the January-March period, the economy contracted 2.5 percent as the virus started spreading in the country.
“We can’t say the situation of Japan’s economy is better than others,” Saito said. “In the long run, deterioration in the employment and income circumstances and (weak) corporate earnings will significantly weigh on the economy.”
In the reporting quarter, private consumption, which accounts for more than half of the Japanese economy, sank 8.2 percent from the previous quarter, with spending on trips, eating out and shopping significantly down amid stay-at-home requests, the Cabinet Office official said.
The plunge in consumer spending was also the steepest on record, surpassing a 4.8 percent drop in the April-June period of 2014, following the previous consumption tax increase from 5 percent to 8 percent on April 1 that year.
Exports of goods and services, including spending by foreign tourists, slumped 18.5 percent. Global demand for products such as cars and auto parts was dampened during hard lockdowns in many major cities abroad, and the number of inbound visitors nosedived due to tight international travel restrictions to curb the virus spread.
Meanwhile, imports posted a relatively limited drop of 0.5 percent, as solid imports from China helped offset a decline in those from the United States and European countries.
Private capital expenditure, another key pillar of domestic demand, fell 1.5 percent, while private residential investment slid 0.2 percent, as the pandemic raised uncertainty over the business outlook.
Public investment was up 1.2 percent, supported by expenditures to build infrastructure to prepare for natural disasters in the future, while government spending declined 0.3 percent.
In nominal terms, or unadjusted for price changes, Japan’s economy contracted 7.4 percent in the quarter, or by an annualized 26.4 percent.
Japan last saw GDP shrinkages for three straight quarters from October-December 2010 through April-June 2011, affected by weak private consumption and a massive earthquake and tsunami that devastated Japan’s northeastern region in March 2011.