Quarter's 27.8 percent shrinkage takes economy back to birth of Abenomics
People wearing face masks walk across a traffic intersection in the Shinjuku district of Tokyo on Aug 17, 2020. (HIRO KOMAE / AP)
Japan on Monday reported its worst economic contraction on record in the second quarter, though experts expect a gradual recovery will head off the prospect of a deeper coronavirus-induced recession.
The second-quarter decline means Japan's real GDP has shrunk to US$4.56 trillion, wiping out the growth under the Abenomics policies
Japan's GDP shrank by 7.8 percent for the quarter to the end of June, compared with the previous quarter, the Cabinet Office said. That translated to an annualized rate of decline of 27.8 percent, the steepest in the 40 years since modern records started and marking the third-straight quarter of contraction.
It also erases the gains made by the economy under Prime Minister Shinzo Abe's "Abenomics" stimulus policies deployed in late 2012.
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Already weakened by a tax increase and a spate of natural disasters last year, Japan's economy became the first among the major countries to officially slip into recession－defined by two consecutive quarters of contraction－at the beginning of the coronavirus outbreak. Social-distancing restrictions and official requests for people to stay home had further slammed consumption and trade.
Japan's Economy Minister Yasutoshi Nishimura, who is also in charge of the country's coronavirus response, said the plunge was mainly caused by the measures brought in to arrest the spread of the virus.
"In April, May, a state of emergency was issued. It was a situation where the economy was artificially stopped, so to speak, and the impact was severe," he said, adding that the government will continue to prioritize support for those who are in dire circumstances. It will also seek to boost domestic demand.
Takeshi Minami, chief economist at the Norinchukin Research Institute, said: "The big decline can be explained by the decrease in consumption and exports.
"I expect growth to turn positive in the July-September quarter. But globally, the rebound is sluggish everywhere except for China."
While Japan's contraction was smaller than a 32.9 percent decrease for the same quarter in the United States and a 20.47 percent plunge in the United Kingdom, it was much bigger than the 17.9 percent drop posted in the first quarter of 2009, when the collapse of investment bank Lehman Brothers triggered a global financial crisis.
The second-quarter decline means Japan's real GDP has shrunk to 485 trillion yen (US$4.56 trillion), wiping out the growth under the Abenomics policies.
"The pandemic's total impact on the economy up to this point is almost the same as the 2008 financial crisis," said Michinori Naruse, an economist at the Japan Research Institute.
"But with the financial crisis, things got worse slowly," Naruse said. "This time, they got bad all at once."
To curb the economic downturn, the Japanese government ended the country's state of emergency in May and issued a stimulus package worth around 40 percent of the nation's GDP, including cash handouts and zero-interest loans.
"The economy was hit severely in April and May, but it started to bottom out in May, and in June it was actually a pretty sizable rebound," said Yuzo Tanaka, a professor of economics at Ryukoku University in Kyoto.
"Meanwhile, as Japan's export-dependent economy relies heavily on growth in China and since China's coronavirus situation has subsided, it is expected that Japan's economy will also recover gradually."
Health speculation
Meanwhile, Abe, whose first term in office ended in part for health reasons, sparked fresh speculation on Monday about his well-being with an unexpected, hourslong hospital visit.
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Abe emerged from the Tokyo hospital where he was previously treated for ulcerative colitis more than seven hours after he entered, and left by car without saying anything, according to TV footage of local media.
His previously unannounced arrival on Monday morning prompted a local media frenzy and comes after weeks of speculation about his health.
A weekly magazine report in July claimed Abe had been vomiting blood, but government spokesman Yoshihide Suga insisted the prime minister was healthy.
Agencies contributed to this story.
