Worst decline in 6 years - Japan risks recession as economy shrinks 1.6%
By Liam Sheasby, News Editor
17 Feb 2020
Japan has become the latest economy risking recession following the release of weak GDP figures this morning. Data from the fourth quarter of 2019 shows the world’s third-largest economy contracted by 1.6% - its worst quarter since Q4 2014 and the second-worst since the financial crisis in 2008/09.
More significantly, the annualised contraction was a much steeper 6.3%. Investors annualise GDP figures for an easier time reading annual performances versus other metrics. Economists had forecast 3.9% GDP contraction on an annualised basis. For four quarters to achieve this rate, the expectation was for an average of 0.975% GDP reduction in each quarter.
As the tweet above shows, Japan recently implemented a tax hike. This was a sales tax, increased from 8% to 10%. The result was a 2.9% drop in consumer spending, which in turn hit demand for things such as household appliances and cars.
The worry for the Bank of Japan now will be the coronavirus, which has already impacted productivity and output within the Japanese economy. Experts do not expect the virus – now named Covid-19 – to have run its course for weeks to come. This would likely mean the entirety of Q1 and perhaps into Q2. Even if the first quarter performance improves slightly, it likely won’t be enough to combat the coronavirus impact. The follow-on risk is any impact on the 2020 Olympics, which are to be hosted in Tokyo in the summer. Any virus threat will deter foreign visitors from travelling to Asia, let alone Japan, and Japan – having spent millions if not billions on preparing to host the competition – will be desperate for tourism to generate returns on the nation’s investment.
Japan’s primary stock market, the Nikkei 225, closed down 164.35 points this morning; a drop of 0.69% from Friday’s close of 23,687.59 points. The economic news caused a much sharper drop of 1.5% to a low of 23,335.99 points, but the market rallied on the news of economic stimulus in China and the Bank of Japan’s openness to follow suit in the coming weeks.
Japan’s poor GDP figures put it in a similar bracket to Germany, the fourth-largest world economy, who are currently in economic limbo with 0% GDP growth. The global economic slowdown, following the classic Boom and Bust cycle, is on the downward curve. The US-China trade war and the coronavirus outbreak have exacerbated conditions however, limiting production and impacting supply chains. This has disrupted demand across the world, with more sizeable impact upon Japan and Germany - both of whom have large car manufacturing industries.