Japan’s growth drops amid pandemic, worse times likely ahead

TOKYO (AP) — Japan plunged into recession in the first quarter as the coronavirus pandemic battered manufacturing, exports and spending, and economists expect worse damage lies ahead.

The world’s third-largest economy contracted at a 3.4 per cent annual, seasonally adjusted rate in January-March, the Cabinet Office reported yesterday. It shrank 0.9 per cent from the previous quarter.

Analysts said things are expected to get worse as Japan endures its biggest challenge since World War II.

The latest data put Japan squarely into a technical recession, defined as two straight quarters of contraction. The economy contracted at a 1.9 per cent annual pace last October-December.

Japan is extremely vulnerable to repercussions from the pandemic given its dependence on trade with both China and the United States (US), the country where the pandemic began and the country where it has been hit hardest.

A department store employee with a mask dresses a mannequin in Tokyo on March 1. PHOTO: AP

But trouble was brewing even before the virus began disrupting trade and travel, and more recently, domestic business activity and consumer spending.

After years of strenuous efforts to keep growth on track despite a shrinking and fast-ageing population, growth was flat last July-September and a mere 0.5 per cent in April-June, according to the latest numbers.

Among other things, that longer-term weakness reflects disruptions from a trade war between the US and China, Japan’s two biggest single trading partners, slowing global growth and a slowdown in China.

Then came the outbreaks.

Manufacturers that are pillars of Japan’s economy, such as Toyota Motor Corp, have reported dismal financial results. Some companies have been unable to provide forecasts for this fiscal year. Profitability is nose-diving as people economise and stay home. Production at some plants has halted.

The government has come up with a rescue package of nearly JPY108 trillion, and plans more, including aid to small businesses and cash handouts.