Japan's economy shrinks at record 27.8% as Covid-19 pandemic hits spending

People wearing face masks walk across the Shibuya Crossing in Tokyo, on May 31, 2020.
People wearing face masks walk across the Shibuya Crossing in Tokyo, on May 31, 2020.PHOTO: AFP

TOKYO (REUTERS) - Japan was hit by its biggest economic contraction on record in the second quarter as the coronavirus pandemic crushed business and consumer spending, keeping policymakers under pressure for bolder action to prevent the recession from deepening.

While the economy is emerging from the doldrums after lockdowns were lifted in late May, many analysts expect any rebound in July-September growth to be modest as a renewed rise in infections keep consumers’ purse-strings tight.

Gross domestic product (GDP) shrank an annualised 27.8 per cent in April-June, government data showed on Monday (Aug 17), marking the biggest decline since comparable data became available in 1980.

It was the third straight quarter of contraction and slightly bigger than the median market forecast for a 27.2 per cent drop.

“The big decline can be explained by the decrease in consumption and exports,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“I expect growth to turn positive in the July-September quarter. But globally, the rebound is sluggish everywhere except for China.”

Private consumption, which accounts for more than half of Japan’s economy, plunged 8.2 per cent for the quarter, as lock-down measures to prevent the spread of the virus kept consumers at home.

The drop, which exceeded analysts’ forecast of a 7.1 per cent fall, was the biggest quarterly decline on record.

Capital expenditure declined 1.5 per cent in the second quarter, less than a median market forecast for a 4.2 per cent fall.

External demand, or exports minus imports, shaved a record 3.0 percentage point off GDP, as the pandemic dampened global demand, the data showed.

Japan has deployed massive fiscal and monetary stimulus to cushion the blow from the pandemic, which hit an economy already reeling from last year’s sales tax hike and the US-China trade war.

While the economy has re-opened after the government lifted state of emergency measures in late May, a worrying resurgence in infections cloud the outlook for business and household spending. nd, the data showed.

Japan has deployed massive fiscal and monetary stimulus to cushion the blow from the pandemic, which hit an economy already reeling from last year's sales tax hike and the US-China trade war.

While the economy has re-opened after the government lifted state of emergency measures in late May, a worrying resurgence in infections cloud the outlook for business and household spending.