Japan's economy contracted at an annualized rate of 3.4 percent in January-March, government data showed on Monday, meeting the technical definition of a recession – the first since the second half of 2015.
Trapped by the ongoing COVID-19 pandemic that has been massively disruptive on supply chains and businesses, Japan's economy put the nation on course for its deepest postwar slump as the coronavirus crisis takes a heavy toll on businesses and consumers.
"It's near certainty the economy suffered an even deeper decline in the current quarter," said Yuichi Kodama, chief economist at Meiji Yasuda Research Institute. "Japan has entered a full-blow recession."
Private consumption, which accounts for more than half of Japan's 5-trillion-U.S.-dollar economy, slipped 0.7 percent, versus a 1.6 percent drop expected by economists.
That 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 percent from 8 percent in October last year.
The virus' impact on corporate Japan has been telling, with the GDP data showing exports contracted sharply by 6 percent in the first quarter.
The shakout in global trade was highlighted in the recent March data, with Japan's exports slumping the most in nearly four years due to plunging U.S.-bound shipments including cars.
Capital expenditure fell 0.5 percent in the fourth quarter, against a median forecast for a 1.5 percent drop and marked the second consecutive quarter of declines, the data showed.
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 labor market. The jobless rate in March rose to its highest in a year, while job availability slipped to a more than three-year low.
Deepening slump
Conditions are expected to have worsened in Japan in the current quarter after Prime Minister Shinzo Abe in April declared a nationwide state of emergency amid a rise in coronavirus infections.
The emergency, which urged citizens to stay home and many businesses to close, was lifted for most regions on Thursday, but remained in effect for some big cities including Tokyo.
Analysts polled by Reuters expect Japan's economy to shrink an annualized 22.0 percent in the current quarter, which would be the biggest decline on record and underscores the collapse in activity that is expected to see the worst global slump since the Great Depression of the 1930s.
The government has already announced a record 1.1-trillion-U.S.-dollar stimulus package, and the Bank of Japan expanded stimulus for the second straight month in April. Abe has pledged a second supplementary budget later this month to fund fresh spending measures to cushion the economic blow from the outbreak.
(With input from Reuters)
(Cover via VCG)