Japan’s pandemic-hit economy shrank last quarter by the most in records going back to 1955, official data is set to show Monday, with a resurgence of the virus threatening to slow a fragile recovery now under way. Analysts see gross domestic product contracting at an annualized pace of 27% in the three months through June. That means the world’s third-largest economy will have declined in size for three straight quarters, hit first by trade wars and a sales tax hike, then by the virus.
Virus Drop
Japan’s economy is set for its worst decline in data going back to 1955
Source: Cabinet Office
Note: 2020 2Q latest survey projection
The cratering of Japan’s economy follows grim readings from other major countries reeling from the impact of Covid-19. The U.S., where the virus still rages on, shrank by nearly a third last quarter.
A five-week nationwide state of emergency devastated consumption in the second quarter as people stayed at home and businesses closed, but retail sales and factory output in Japan are already showing signs of recovery. Still, weak overseas demand for cars and other Japanese exports is likely to continue and there will be no Olympics spending boost from tourists this quarter with the Games postponed.
Overseas visitors to Japan were down 99.9% in every month of the second quarter compared with a year earlier, battering a tourism industry that had been one of the clearer success stories of Prime Minister Shinzo Abe’s tenure. The biggest factor clouding the outlook is the trajectory of the pandemic itself. “What happens after this really depends on Covid-19,” said economist Yoshiki Shinke at Dai-Ichi Life Research Institute. “I don’t think the economy will return to pre-pandemic levels anytime soon.”
Japan’s death toll of just over 1,000 is still tiny compared with the U.S. and some other countries, but a recent jump in new infections — with another 206 confirmed in Tokyo on Thursday — could weigh on the recovery if people become too fearful to travel, eat out or shop.