Japan's second quarter GDP shrinks at record 27.8% amid pandemic

Japan’s economy in the April-June period shrank an annualized 27.8 percent in real terms from the previous quarter, the sharpest contraction on record, as economic activity was restricted under a state of emergency during the coronavirus outbreak, government data showed Monday.

The preliminary gross domestic product data corresponds to a 7.8 percent decrease on a seasonally-adjusted quarterly basis, marking negative growth for the third consecutive quarter, according to the Cabinet Office.

Comparable data are available since the April-June quarter of 1980, but a Cabinet Office official said the latest figure is considered the largest shrinkage on record dating back to 1955, when reference values can be traced to.

Even before the virus’s spread, the economy had been affected by the U.S.-China trade spat and a consumption tax hike last year. Damage to the economy has deepened with the impact of the pandemic after the central government declared a state of emergency in April.

Local governments asked residents to stay at home and nonessential businesses to suspend operations under the emergency declaration, which was first issued on April 7 for Tokyo and six other prefectures and later for the entire nation. It was lifted for all 47 prefectures by late May.

Many analysts have forecast that the nation’s economy will rebound by over 10 percent in the July to September period from the current quarter in real terms on an annualized basis, given the gradual resumption of economic activity after the end of the virus emergency.

Analysts believe it will take at least a few years for the economy to bounce back to the pre-pandemic level.

The latest figures, far exceeding the previous record of an annualized real 17.8 percent contraction in the January to March quarter of 2009, in the wake of the global financial crisis, was worse than the average forecast by private-sector economists of a 26.59 percent shrinkage.

In the reporting quarter, private consumption, which accounts for more than half of the economy, sank 8.2 percent from the previous quarter, with spending on trips, eating out and shopping significantly cut amid stay-at-home requests, the official said.

The plunge in consumer spending was also the steepest on record, surpassing a 4.8 percent drop in the April to June quarter of 2014, following the previous consumption tax increase from 5 percent to 8 percent on April 1 that year.

Exports of goods and services, including spending by foreign tourists, slumped 18.5 percent. Global demand for products such as cars and auto parts was dampened during hard lockdowns in many major cities abroad, and the number of inbound visitors nosedived due to tighter international travel restrictions to curb the virus spread.

Meanwhile, imports posted a relatively limited drop of 0.5 percent, as solid imports from China helped offset a decline in those from the United States and European countries.

Private capital expenditure, another key pillar of domestic demand, fell 1.5 percent, while private residential investment slid 0.2 percent, as the pandemic raised uncertainty over the business outlook.

In nominal terms, the economy contracted an annualized 26.4 percent, and 7.4 percent on a quarterly basis.

In the October to December period of last year, Japan’s economy shrank an annualized 7.0 percent, hit by the consumption tax hike from 8 percent to 10 percent in October and a devastating typhoon. In the January to March period it contracted 2.5 percent as the virus started to spread nationwide.

Japan last saw GDP shrinkages for three straight quarters from October to December 2010 through April to June 2011, affected by weak private consumption and the massive earthquake and tsunami that devastated the country’s northeast in March 2011.