Japan jumps into the growing list of large economies reporting bad GDPs in light of the pandemic’s disruption of most of the world’s economic activities. Consumption, the main driver of Japan’s economy, is severely affected by the outbreak.
Third quarterly decline of Japan
The third largest economy in the world saw a contraction of 7.8 percent in the economy’s second quarter, per the Cabinet Office of Japan on Monday. This means a dive of 27.8 percent on an annualized basis. It was even slightly worse than predictions of 27.2 percent contraction.
This decline is the third in Japan’s quarter consecutive drop in GDP. It is also the worst slide since the country began taking records in 1980. Per Reuters, the pandemic has only continued to disrupt the “Abenomics” initiated by Prime Minister Shinzo Abe in 2012. It is a set of monetary and fiscal policies that aim to boost Japan’s economy.
According to chief economist Takeshi Minami of Norinchukin Research Institute, the reason for the steep drop can be accounted to the “decrease in consumption and exports.”
Consumption, a huge chunk of Japan’s overall economic activity, has seen a decline of 8.2 percent for the second quarter. This is a result of the pandemic forcing businesses to close and people to stay at home to curb the spread of the virus. External demand also shaved off three percentage points, with international trading seeing reduced exportations.
Carmakers also saw the toll on the demand brought by the pandemic. Overseas sales of vehicles are suffering for April-June, which contributed to Japan’s economic shrinking.
Rising up from the plunge
Restrictions in the country were eased last May, so analysts are expecting recovery. Per Bloomberg, recent data shows pickup in retail sales and factor output. Meanwhile, Minami added that he is expecting “growth to turn positive in the July-September quarter. But globally, the rebound is sluggish everywhere except for China.”
Consumption in the country is also seeing improvement, according to Economy Minister Yasutoshi Nishimura. He told the press: “We hope to do our utmost to push Japan’s economy, which likely bottomed out in April and May, back to a recovery path driven by domestic demand.” He also encouraged citizens to think of ways to curb the viral spread while also boosting the economy.