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By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) – Japan went through its biggest economic recession in the last quarter, as the coronavirus pandemic tired the purchase of supermarkets and crushed demand for cars and other exports, reinforcing the arguments for bolder political action to avoid a deeper recession.
The third consecutive quarter of falls has the duration of genuine gross domestic product (GDP) to fall to a decade-long low, erasing the benefits of Prime Minister Shinzo Abe’s “Abenomics” stimulus policies implemented at the end of 2012.
As the economy emerges from the recession after the locks lifted in late May, many analysts expect any uptick in the current quarter to be modest, as an additional buildup of infections helps keep market chains tense.
“The sharp fall can be explained by declining intake and exports,” said Takeshi Minami, a leading economist at the Norinchukin Research Institute.
“I hope that the expansion will be positive in the July-September quarter. But overall, the uptick is slow unless it is China.”
The world’s third-largest economy fell by 27.8% on an annualized basis in April-June, according to government knowledge on Monday, marking the biggest drop since comparable knowledge in 1980 and forecasts slightly of a 27.2% decline in a Reuters survey. analysts.
While the contraction was less than a 32.9% decline in the United States, it was much larger than a 17.8% decline in Japan in the first quarter of 2009, when the collapse of Lehman Brothers shook global money markets.
Japan’s genuine GDP length fell to 485 trillion yen, the lowest level since April-June 2011, when Japan was still suffering from two decades of deflation and economic stagnation.
Japanese stocks fell on Monday to a maximum in two weeks and yields on maximum government bonds fell to weak GDP data.
Elsewhere in the region, Thailand experienced its biggest economic decline since the 1998 Asian currency crisis.
(Click to see an interactive chart of nominal and real GDP since 2011: https://tmsnrt.rs/2Fwq2JK)
For a chart of Japan’s economy that recorded a record drop in the quarter:
https://fingfx.thomsonreuters.com/gfx/editorcharts/yzdpxnmewpx/eikon.png
CONSUMPTION EXPENSES
At the root of Japan’s depressing reading of personal consumption, it fell to a record 8.2%, as blocking measures to prevent the spread of the virus kept consumers at home.
External demand, or exports minus imports, reduced GDP by 3.0 percentage points, and shipments fell by 18.5%, as car exports were hit hard.
The decline in global vehicle sales has hurt automakers such as Mazda Motor Corp and Nissan Motor Co, which are among the main drivers of the Japanese economy.
Capital expenditure fell by 1.5% in the current quarter, less than the expected decline of 4.2%, as investment in software offset weak spending in other sectors.
Economy Minister Yasutoshi Nishimura said GDP readings were “pretty severe,” but they pointed to some problems such as a recent consumer recovery.
But some analysts warn that companies can simply cut jobs and expenses if the resurgence of infections and weak global demand continue to damage their bottom line.
Renewed tensions between the United States and China can also weigh on the fragile recovery. About 90% of economists surveyed through Reuters expect the clash with the Japanese economy.
“The call to business investment is expected to decline due to deteriorating corporate profits and the spread of coronavirus,” said Saisuke Sakai, senior economist at the Mizuho Research Institute.
“There is a possibility that economic activity will stagnate if primary nations take blocking measures again or if Japan restores a state of emergency,” he said.
Japan has deployed large fiscal and stimulus measures to cushion the pandemic blow, which hit an economy already reeling from last year’s sales tax increase and the U.S.-China industrial war.
As the economy reopened after the government lifted state-of-the-state measures last May, a recent concern about the buildup of infections is tarnishing the outlook.
(Information through Leika Kihara and Tetsushi Kajimoto, additional information through Kaori Kaneko and Daniel Leussink; edited through Sam Holmes)