Japan's economic recession a foregone conclusion amid COVID-19 outbreak

Source: Xinhua | 2020-04-17

Institutions and economists have widely concluded that Japan's economic recession is inevitable as the COVID-19 outbreak has devastated the country's economy, ending a cycle of economic expansion that has continued since Japanese Prime Minister Shinzo Abe returned to power in 2012.

The Japanese economy will contract by 5.2 percent in 2020, based on the assumption that virus outbreaks in most countries will peak in the second quarter of this year and subside in the second half of the year, the International Monetary Fund (IMF) said in its report on world economic outlook released Tuesday. That is generally in line with forecasts by Japanese economists.

If Japan's state of emergency continues till the end of May and the outbreak could be contained as early as June, Japan's real gross domestic product (GDP) could fall by 4.5 percent in 2020, Daiwa Institute of Research said in a recent report. If the outbreak drags on to the end of the year, Japan's economy could contract by 7.6 percent and suffer more compared to the 2008 financial crisis, the report said.

In fact, the country's economy has been shrinking since the fourth quarter of last year, thanks to a consumption tax hike in October 2019 and the global economic slowdown. Data released by the cabinet in March showed that real GDP fell at an annualized rate of 7.1 percent in the fourth quarter of 2019 due to a sharp fall in domestic demand.

Since the beginning of this year, domestic demand and exports of Japan continued to be sluggish, while all kinds of economic data continued to fall.

The number of foreign visitors fell by 58.3 percent in February from a year earlier, according to data released by the government's tourism bureau on Wednesday. The number in March continued to drop sharply by 93 percent.

The plunge in the number of foreign tourists and the decline in the number of Japanese people going out have led to a sharp drop in the turnover of Japanese tourism and service companies, especially the small and medium-sized enterprises.

The number of bankruptcies with debts of more than 10 million yen (92,920 U.S. dollars) rose 11.7 percent in March from a year earlier, increasing for the seventh consecutive month, and 12 companies have closed as a result of the outbreak, according to a report by Tokyo Shoko Research.

The short-term economic survey of enterprises in the first quarter by the Bank of Japan in early April showed that the confidence index of large manufacturing enterprises in Japan dropped to minus 8 points due to the spread of the epidemic and the stagnation of economic activities, while the leading index of future confidence among big manufacturers fell to minus 11 points.

When the government released its monthly economic report in late march, it dropped the word "recovery," which had been used for years, saying that the economy is in a severe downturn and a dire situation which are expected to continue.

Japan's cabinet recently approved the largest stimulus package in history, totaling 108 trillion yen (1 trillion dollars), with fiscal spending standing at 39.5 trillion yen (367 billion dollars). Abe said the plan was a general mobilization of all policy instruments including fiscal, financial and tax systems.

Hiroyuki Kishi, a professor at Keio University, said that although the stimulus package is large, it would do little to ease the crisis.

The fiscal spending constitutes less than 40 trillion yen (372 billion dollars) and many of the arrangements have little to do with curbing the epidemic, while subsidies to struggling small and medium-sized enterprises are also a drop in the sea, he said.