Japan slips into recession for first time in 4½ years

TOKYO • Japan's economy slipped into recession for the first time in 4½ years, putting the nation on course for its deepest post-war slump as the coronavirus crisis ravages businesses and consumers.

First-quarter gross domestic product (GDP) data yesterday underlined the broadening impact of the outbreak, with exports plunging the most since the devastating March 2011 earthquake as global lockdowns and supply chain disruptions hit shipments of Japanese goods.

Analysts warn of an even bleaker picture for the current quarter as consumption crumbled after the government last month requested citizens to stay home and businesses to close, intensifying the challenge for policymakers battling a once-in-a-century pandemic.

"It's near certainty the economy suffered an even deeper decline in the current quarter," said Mr Yuichi Kodama, chief economist at Meiji Yasuda Research Institute. "Japan has entered a full-blown recession."

The world's third-largest economy contracted an annualised 3.4 per cent in the first quarter, preliminary official GDP data showed, less than a median market forecast for a 4.6 per cent drop.

The slump came on top of an even steeper 7.3 per cent decline in the October-December period, with the consecutive quarters of contraction meeting the technical definition of a recession. The last time Japan suffered a recession was in the second half of 2015.

The coronavirus, which first emerged in China late last year, has ravaged the global economy as many nations went into strict lockdowns to curb the outbreak - which has so far killed over 316,000 people worldwide.

The pandemic has been massively disruptive on supply chains and businesses, particularly in trade-reliant nations such as Japan.

Indeed, the fallout from the virus on corporate Japan was telling, with exports diving 6 per cent in the first quarter, the biggest decline since the April-June quarter of 2011.

The shakeout in global trade was underlined in recent March data, with exports shrinking the most in nearly four years due to plunging United States-bound shipments.

Even the nation's major globe-trotting manufacturers were not spared the pandemic's sweeping impact.

Toyota Motor said last Friday it will cut domestic vehicle production by 122,000 units next month due to a lack of demand. The auto-maker expects an 80 per cent drop in full-year operating profit, its lowest in nine years.

The gloom in Japan is expected to deepen over the coming months.

Analysts polled by Reuters estimate the country's economy will shrink an annualised 22 per cent in the current quarter, which would be the biggest decline on record, with pressure on output intensifying after Prime Minister Shinzo Abe last month declared a nationwide state of emergency amid a rise in coronavirus infections.

The emergency was lifted for most regions last Thursday, but remained in effect for some big cities, including Tokyo.

Private consumption, which accounts for more than half of Japan's US$5 trillion (S$7.1 trillion) economy, slipped 0.7 per cent in the January-March period, less than a market forecast for a 1.6 per cent drop, as robust demand for food and daily necessities partially offset the impact on services spending.

Still, it marked the second straight quarter of decline, as households were hit by the double-whammy of the coronavirus and a sales tax hike to 10 per cent from 8 per cent in October last year.

Capital expenditure fell 0.5 per cent in the first quarter after plummeting 4.8 per cent in the October-December period last year, the GDP data showed, suggesting that uncertainty over the outlook is discouraging firms from boosting spending.

Taken together, domestic demand knocked 0.7 percentage point off GDP growth, while external demand shed 0.2 point.

All of this has put a strain on the labour market. The jobless rate in March rose to its highest in a year, while job availability slipped to a more than three-year low.

REUTERS