Japan entered recession in 1Q, the worst yet to come

The Japanese economy went into recession, with a second quarter in a row of contraction in gross domestic product between January and March, as the coronavirus crisis began to strike, according to data released by the government on Monday.

GDP fell 0.9% in the first quarter of 2020 compared to the fourth quarter of 2019, where it had already contracted by 1.9% (compared to -1.8% announced in a previous estimate in early March).

The consensus of economists polled by the Bloomberg agency expected a slightly larger decline in the first quarter (-1.1%).

It is the first time since 2015 that Japan has returned to a recession, defined by a contraction of national wealth over at least two quarters.

Its economy was already in bad shape since the fourth quarter of 2019, due to a two-point increase in VAT since October 1, which weighed on household consumption, and the devastating passage of a powerful typhoon.

Activity continued to decline in the first quarter as a result of the coronavirus crisis, which further weakened household consumption (-0.8% over a quarter) and reduced business investment.

Growth in public investment also came to a halt in the first quarter (-0.4%), while foreign trade was also at half mast, with a 6% contraction in exports, partially offset by a marked drop in imports also (-4.9%).

“The worst is yet to come,” said Naoya Oshikubo, economist at SuMi Trust, in a note before Monday’s publication. He expects a plunge of 10.2% of GDP in the second quarter compared to the first.

Because the Japanese government declared a state of emergency at the beginning of April in front of the rise of cases of Covid-19 in the archipelago, while the pandemic paralyzed even more Europe and the United States.

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The state of emergency in Japan does not lead to compulsory confinement but allows regional governors to encourage residents to stay at home as much as possible, and businesses deemed non-essential to temporarily lower the curtain.

The device was lifted Thursday, two weeks in advance, in 39 of the 47 prefectures of the country, following a sharp drop in new identified cases of Covid-19. But it is maintained for the moment in Tokyo and in the other most urbanized and industrialized regions of the country.

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