Japan on brink of recession as economy contracts

Japan’s economy shrank at the fastest pace in almost six years in the December quarter as a sales tax hike hit consumer and business spending, raising the risk of a recession as China’s coronavirus outbreak chills global activity.

Analysts say the widening fallout from the epidemic, which is damaging output and tourism, could have a significant impact on Japan if it’s not contained in coming months.

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.

If this epidemic is not contained by the time of the Tokyo Olympic Games, the damage to the economy will be huge, said Taro Saito, executive research fellow at NLI Research Institute.

Japan’s gross domestic product (GDP) shrank an annualized 6.3% in the October-December period, government data showed on Monday, 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.

Singapore cut its economic growth projections for 2020, Thailand posted its slowest expansion in five years and China’s home prices rose at their weakest pace in almost two years.

Japanese stocks slipped on the recession prospects with the benchmark Nikkei average N225 down 0.7%.

The sales tax hike in October last year as well as unusually warm weather that hurt sales of winter items weighed on private consumption, which sank a bigger than expected 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.

A poll of eight analysts, conducted after the GDP release, forecast Japan’s economy will contract an annualized 0.3% in the first quarter, though the prediction is subject to change depending on upcoming data for January and February.

BOJ Governor Haruhiko Kuroda said the central bank would consider additional easing if the coronavirus outbreak significantly threatened Japan’s economy and price trends.

Kuroda said the outbreak was the biggest uncertainty for the economy.

Worries about the spread of the coronavirus and its hit to the global economy kept Japanese manufacturers’ mood gloomy in February, a poll found.

The epidemic has forced factories in China to shut down and led to a sharp drop in Chinese tourists.

Source: Voice of Nigeria