July 27, 2021

Japan’s record economic downturn nullifies the achievements of the Shinzo Abe era

Shinzo Abe becomes Japan’s longest continuously serving PM

Japan's record economic downturn nullifies the achievements of the Shinzo Abe era

Japan’s record economic downturn nullifies the achievements of the Shinzo Abe era

Japan suffered its biggest economic downturn on record in the second quarter as the coronavirus pandemic devastated shopping malls and reduced demand for cars and other export goods, arguing for bold policy measures to stave off a deeper recession.

A third-quarter downturn drove real gross domestic product (GDP) to its lowest level in a decade, negating the benefits of stimulus policies «abenomics» prime minister Shinzo Abe, deployed at the end of 2012.

As the economy emerges from its doldrums following the end of May, many analysts expect any recovery in the current quarter to be modest as fear of a second wave of the pandemic will keep consumers in suspense.

«The big recession can be attributed to a decline in consumption and exports, – said Takeshi Minami, Chief Economist of the Norinchukin Research Institute. – I expect growth to become positive in July-September. But globally, the rebound will be sluggish everywhere except China.».

Official data released on Monday showed that the world’s third-largest economy contracted 27.8% year-on-year in April-June, the largest decline since 1980, and little more than the forecasted 27.2% fall that had been predicted. analysts interviewed by Reuters.

While the decline is less than the 32.9% decline in the United States, it is much larger than the 17.8% decline in Japan in the first quarter of 2009, when the Lehman Brothers collapse shook global financial markets..

Japan’s real GDP shrank to 485 trillion yen, its lowest level from April to June 2011, when Japan was still plagued by two decades of deflation and economic stagnation.

Japanese stocks fell the hardest in just two weeks on Monday, and most government bond yields fell on weak GDP data.

In turn, Thailand also reported the largest economic downturn since the 1998 Asian financial crisis..

Japan’s gloomy performance is underpinned by private consumption, which fell by a record 8.2% as measures to prevent the spread of the virus forced consumers to stay at home.

External demand – or exports minus imports – contracted GDP by a record 3.0 percentage points as overseas shipments fell 18.5%, with auto exports hit hardest.

Falling global car sales have hurt automakers like Mazda Motor Corp and Nissan Motor Co, the biggest engines of Japan’s economy..

Capital expenditures declined 1.5% in the second quarter, less than the forecasted 4.2% fall, as solid investment in software offset weak spending in other sectors.

Minister of Economy Yasutoshi Nishimura acknowledged that GDP figures were «quite serious», but pointed out some highlights such as the recent rise in consumption.

However, some analysts warn that companies could cut jobs and cut costs if the second wave of coronavirus and weak global demand continue to hurt their bottom line..

Renewed tensions between the US and China could also affect the fragile recovery. About 90% of economists surveyed by Reuters expect the conflict to affect the Japanese economy.

«Business investment demand is expected to fall due to worsening corporate profits and risk of coronavirus spread», – said Saisuke Sakai, Senior Economist, Mizuho Research Institute.

«There is a possibility that economic activity could stagnate if major countries reintroduce quarantine measures or Japan re-enforces a state of emergency.», – he thinks.

Japan has deployed massive fiscal and monetary stimulus to cushion the blow from the pandemic that hit an economy already plagued by last year‘s sales tax hike and the U.S.-China trade war.

While the economy has reopened after the government lifted the state of emergency in late May, the recent alarming rise in the number of cases darkens the prospects.