Japan’s growth drops amid pandemic, worse times likely ahead

Japan plunged into recession in the first quarter as the coronavirus pandemic slammed production, exports and spending and economists warned worse times lie ahead

TOKYO — Japan plunged into recession in the first quarter as the coronavirus pandemic battered manufacturing, exports and spending, and economists expect worse damage lies ahead.

The world’s third-largest economy contracted at a 3.4% annual, seasonally adjusted rate in January-March, the Cabinet Office reported Monday. It shrank 0.9% from the previous quarter.

Analysts say things are expected to get worse as Japan endures its biggest challenge since World War II.

The latest data put Japan squarely into a technical recession, defined as two straight quarters of contraction. The economy contracted at a 1.9% annual pace in October-December.

Japan is extremely vulnerable to repercussions from the pandemic given its dependence on trade with both China and the U.S., the country where the pandemic began and the country where it has been hit hardest.

But trouble was brewing even before the virus began disrupting trade and travel, and more recently, domestic business activity and consumer spending.

After years of strenuous efforts to keep growth on track despite a shrinking and fast-aging population, growth was flat in July-September and a mere 0.5% in April-June, according to the latest numbers.

Among other things, that longer-term weakness reflects disruptions from a trade war between the U.S. and China, Japan’s two biggest single trading partners, slowing global growth and a slowdown in China.

Then came the outbreaks.

Manufacturers that are pillars of Japan’s economy, such as Toyota Motor Corp., have reported dismal financial results. Some companies have been unable to provide forecasts for this fiscal year. Profitability is nose-diving as people economize and stay home. Production at some plants has halted.

The government has come up with a rescue package of nearly 108 trillion yen ($1 trillion), and plans more, including aid to small businesses and cash handouts.

The Bank of Japan, already years into an unprecedented effort to flood the economy with cash through asset purchases and a negative interest rate policy, has doubled down on its promises to support growth.

More than 16,000 people in Japan have been infected with the virus and more than 700 have died, but those numbers are relatively low given it has the world’s oldest population and its cities are densely populated.

Japan eased its state of emergency last week for most of the country, though hot spots like Tokyo are maintaining restrictions. Many places are starting to reopen, but a return to normal operations and a recovery in consumption are not expected anytime soon.

Robert Carnell, regional head of research Asia-Pacific at ING, said the damage to the private sector will continue, even as public demand picks up, helped by government aid.

“So even though the state of emergency has been criticized as being a halfhearted response to the pandemic, compared with many other nations, it has still resulted in a substantial reduction in economic activity, and will weigh on growth,” he said.

———

Yuri Kageyama is on Twitter https://twitter.com/yurikageyama