With Japan taking a hit from the unabated outbreak of the coronavirus soon after a plunge in its economic performance in the last quarter of 2019, some fear the country may be on the brink of recession.
The COVID-19 viral outbreak is thought to be weighing on growth in the current quarter, raising concerns that the world’s third-largest economy may contract for a second consecutive quarter in a phenomenon known as a “technical recession.”
According to a Bloomberg survey, nine out of 14 economists polled see the economy shrinking again in the three months to the end of March, following the sharpest contraction in more than five years last quarter after the consumption tax hike.
The median of analysts’ forecasts shows gross domestic product declining at an annualized pace of 0.25 percent this quarter.
The growing likelihood of a recession could put pressure on Prime Minister Shinzo Abe’s administration to consider yet more extra spending to support the economy, just a couple of months after the government announced a stimulus package to support growth.
Economists now see COVID-19 preventing a rebound this quarter, and keeping the economy in reverse. The immediate impact of the epidemic has been to stop hundreds of thousands of Chinese visitors to Japan — the nation’s biggest source of tourist income.
Government data showed Monday that seasonally adjusted GDP in the last three months of 2019 shrank a real 6.3 percent from the preceding quarter on an annualized basis, because of a setback in demand following the consumption tax hike from 8 percent to 10 percent at the beginning of October and damage from powerful typhoons that hit Japan during the period.
“The economy had been supposed to continue to recover moderately,” economic and fiscal policy minister Yasutoshi Nishimura said at a news conference after the release of the GDP data.
His comments indicate that the impact of the virus outbreak has disrupted the scenario anticipated by the government, in which its stimulus measures would help keep the economy afloat.
To mitigate the effects of the tax hike, the government introduced a reward point program for shoppers who use cashless payment methods, expanded tax cuts for housing loan borrowers and launched a program for free nursery and kindergarten services, as well as keeping the consumption tax at 8 percent for food and some other products.
These measures helped limit to 2.9 percent the year-on-year decline in private consumption for the October-December period, and kept the fall in housing investment at 2.7 percent. That compares with drops of 4.8 percent and 9.1 percent, respectively, in April-June 2014 after the consumption tax was raised to 8 percent from 5 percent that April 1.
Still, Taro Saito, head of the NLI Research Institute’s economic research department, said he expects GDP to shrink a real 1.6 percent at an annual rate in the current quarter, partly reflecting falls in the number of visitors from China and Japan’s exports to that country amid the coronavirus crisis.
Many in industry are worried about the impact. The outbreak “will affect the parts supply chain,” said Katsuhiro Miyamoto, executive vice president of Nippon Steel Corp.
Some expect the crisis to ease between April and June in light of what happened with the SARS epidemic early in the 21st century, but that is far from guaranteed.