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Japanese economy shrinks by 27.8%, slammed by pandemic

Japan’s economy shrank at annual rate of 27.8% in April-June, the worst contraction on record, as the coronavirus pandemic.

This was according to government data released Monday.

The Cabinet Office reported that Japan’s preliminary seasonally adjusted real gross domestic product, or GDP, the sum of a nation’s goods and services, fell 7.8% quarter on quarter.

The annual rate shows what the number would have been if continued for a year. The reading was almost in line with the 26.6 per cent contraction forecast by the Japan Centre for Economic Research.

The center expected the economy to bounce back in the July-to-September period with annualised growth of 13.6 per cent.

Consumer spending, a major component of output, dropped 8.2 per cent quarter on quarter in the April-to-June period for the third straight quarter of decline following a consumption tax increase in October, according to the report released by the Cabinet Office.

Corporate investment fell 1.5 per cent in the April-to-June quarter after a 1.7 per cent rise in the first quarter, the office said.

Exports of goods and services plunged 18.5 per cent and imports were down 0.5 per cent, the office added.

The Japanese economy shrank at an annualised rate of 2.5 per cent in the first quarter, officially entering a recession following a seven per cent contraction in the last quarter of 2019, when the economy took a big hit after the government raised the country’s consumption tax to 10 per cent on Oct. 1 from eight per cent.

The pandemic took a heavy toll on economic activity as the government declared a state of emergency for Tokyo and six other prefectures in early April.

The government urged residents to stay at home and issue business closure requests. Nine days later, the measure expanded to the entire country.

The nationwide state of emergency had lasted a month until mid-May in most of the country’s 47 prefectures.

On May 25, the measure was lifted in Tokyo and four other prefectures, which were the last remaining regions subject to restrictions.

Tokyo was excluded from the campaign following a rapid rise in case numbers there.

In order to help mitigate the fallout from the pandemic, Japan’s parliament enacted a record 31.9-trillion-yen ($299 billion) supplementary budget in June.

The move came six weeks after the approval of a 25.69-trillion-yen first extra budget, in which the government provided 100,000 yen to all residents in the country.

Analysts say the economy is expected to recover gradually, once the impact of the pandemic is curbed. Japan’s export-dependent economy relies heavily on growth in China, where outbreaks of the novel coronavirus began and have since subsided. But demand has remained subdued.

Development of a vaccine or medical treatment for COVID-19 would also help, but prospects for such breakthroughs are unclear.

Since GDP measures what the economy did compared to the previous quarter, such a deep contraction will likely be followed by a rebound, analysts said, unless conditions deteriorate further.

That doesn’t necessarily mean the economy will return to pre-pandemic levels. Some experts doubt air travel and other sectors will ever fully recover.

On the other hand, some companies have reaped the rewards of people staying at home, such as the Japanese video-game maker Nintendo Co., whose recent profits have boomed.

Source: Voice of Nigeria