Japanese economy on brink of recession

Oct-Dec GDP shrinks much faster than expected as sales tax hike hits private consumption

“There’s a pretty good chance the economy will suffer another contraction in January-March. The virus will mainly hit inbound tourism and exports, but could also weigh on domestic consumption quite a lot,” said Taro Saito, executive research fellow at NLI Research Institute.

“If this epidemic is not contained by the time of the Tokyo Olympic Games, the damage to the economy will be huge,” he said.

Japan’s gross domestic product (GDP) shrank an annualised 6.3% in the OctoberDecember period, government data showed yesterday, much faster than a median market forecast for a 3.7% drop and the first decline in five quarters.

It was the biggest fall since the second quarter of 2014, when consumption crumbled after a sales tax hike in April of that year.

The weak data also comes amid signs of struggle in the wider region with the coronavirus, leaving Japan vulnerable to a recession – defined as two consecutive quarters of contraction.

Japanese stocks slipped on the recession prospects with the Nikkei average down 0.7%.

The sales tax increase in October last year – as well as unusually warm weather that hurt sales of winter items – weighed on private consumption, which sank a bigger-thanexpected 2.9%, marking the first drop in five quarters.

Capital expenditure fell 3.7% in the fourth quarter, much faster than a median forecast for a 1.6% drop and the first decline in three quarters, the data showed.

Combined, domestic demand knocked 2.1 percentage points off GDP growth, more than offsetting a 0.5 point contribution from external demand. – Reuters