Japan Falls Into Recession – And Who’s Next?

Japan Falls Into Recession – And Who’s Next?

For the first time since 2015, Japan announced it has fallen into recession. The world’s third biggest economy recorded two consecutive negative quarters that ended in March. Japan’s economy dropped by 3.4 percent in the first three quarters of the year according to the government’s statement.

In the wake of coronavirus pandemic, many economies are struggling to stay up as the strains continue to bite every means of revenue generation. Germany and France are already in the arms of recession.

Japan has become the latest economic power to fall into recession as a result of COVID-19 impacts and the typhoon that had previously devastated the country. It is feared that the economic situation of the Asian giant may get worse as the fight against COVID-19 pandemic is still far from being over.

“The economy entered the coronavirus shock in a very weak position. But the real big ugly stuff is going to happen in the April, June print. It’s going to be three quarters of very negative growth. It is not a very encouraging picture,” said Izumi Devalier, chief Japan economist at Bank of America Merrill Lynch.

The likelihood of a third consecutive quarter of negative growth is ripe as shocks from the pandemic are still hitting every sector of the economy. The trouble could be traced back in October last year, when the country increased a tax on consumption from 8 to 10 percent. Prime Minister Shinzo Abe said it’s in order to reduce the country’s debt that is rated the highest among developed nations and to increase provision for social services as workers age.

The tax increase has resulted in decline in consumer spending, compounding the effects of the typhoon on economic activities. The Japanese economy has been on a dwindling rail even before the outbreak of coronavirus. Following the U.S., China trade war and receding global commodity demand, the country’s export has been dropping slowly.

Given the current realities of economic downturns stemming from coronavirus pandemic, Japan’s prospects for recovery have been further shattered.

With most of businesses shut down, the country sealed itself off from the rest of the world, and the Olympic postponed; Japan was on for a nerving economic crisis it didn’t see coming. Though there was a measure of success scored from the decisions, like the drop in the number of coronavirus cases, it grounded commercial activities to over 70 percent.

The Japanese news outlet NHK reported a drastic fall in commercial activities across the cities. From train stations to tourist parks, the desertion tells of a bleak economic future. Private consumption contributes to the larger part of the economy, but it fell 0.7 percent. Exports which make up 16 percent of the economy shrank 6%. Japan’s economist for Capital Economics Tom Learmouth echoed that it could get much worse.

“The Sharp fall in output in the first quarter suggests the spread of the virus had already dealt a significant blow to economic activity in March,” he said, adding that there would be 12 percent quarter-on-quarter plunge.

Tourism took a major hit, dropping 93 percent year-on-year to 190,000 visitors in March, according to the Japan National Tourism Organization. While there is hope that every sector of the economy would be reopened soon, there is just little hope that it would save the situation.

“The emergency declaration stopped people from going out, leading to a substantial decline in consumption. It is going to be impossible to avoid an impact on the scale of the global financial crisis or even worse,” said Kentaro Arita, a senior economist at the Mizuho Research Institute.

In a bid to save the country from a total collapse, the government has doled out a $1.1 trillion stimulus package. Prime Minister Shinzo Abe said on Thursday that the government is planning to inject more funds.

Experts believe that the government needs to continue to inject more funds into the economy in order to sustain growth or any progress made.

“Depending on the sectors that were generating economic growth before COVID-19 will not be possible in the coming years. For many years, I think private sector activity will be very weak. That means the government will have to continue to support economic activity,” said Sayri Shirai, a professor of economics at Keio University in Tokyo.

She added that the government needs to strategize new means to generate revenue. Abe said on Friday that there is a plan to open every sector of the economy, lifting the state of emergency.

The situation sheds further light on the weight of economic crises standing in the way of many countries. Economic experts believe there will be a wave of recession around the world that will require critical thinking to overcome. As countries, especially in Africa, make the hard choice between life and economy, recession has become a “who is next” question.

Share this post

Post Comment