Why Japan’s Economy Contracts 7%?

In wake of coronavirus, Japan’s economy contracts 7% in December quarter, risking recession. That shrinkage was worse than expected, and it doesn’t even include the coronavirus effects, according to reports.


During the October-December period, Japan’s economy contracted at a dismal 7.1% annual rate that is worse than the initial estimate, also raising the fears that the world’s third largest economy could be headed to a recession.


That wave of recession in economy was the first for Japan in more than a year and followed an October 1 increase in sales tax that hit retail spending. The Cabinet Office data released on Monday was a revision from last month’s estimate of a 6.3% decline.


The given data do not reflect the steep downturn, in country’s tourism and other business activity that is related to the virus outbreak that has spread from China to much of the world.


On a quarterly basis, Japan’s economy trimmed 1.8% in October-December as compared from the previous quarter. And the earlier estimate was of a 1.6% contraction.


Whereas the domestic demand including the investments and consumption fell 2.4%. The government spending also remained flat. A recession seems to be technically defined as two consecutive quarters of contraction.


An analyst Yoshimasa Maruyama with SMBC Nikko Securities called that situation is a serious.

He said that,

“The ongoing recession could be more than just technical and economy could really fall”.


The Japan’s benchmark Nikkei 225 has dropped over the news of Coronavirus outbreak that originally started in central China late in last year and has now spread to about 100 nations all over the world, and sickening people from Italy to Washington State in U.S. On Monday’s trading, Nikkei tumbled again by losing 6.2% in morning trading to 19,473.07.


In that situation of global slowdown, Japan has been trying to wrest itself out of these economic doldrums, by encouraging the lending and public works projects. Japanese government has announced various stimulus measures in order to counter the slowdown.