Japan has fallen into recession for the first time since 2015 as the financial toll of the Covid-19 continues to escalate.
Last week, Germany slipped into recession as more major economies face the impact of sustained lockdowns.
The world’s third biggest economy shrank at an annual pace of 3.4% in the first three months of 2020.
The 3.4% fall in growth domestic product (GDP) for the first three months of 2020, follows a 6.4% decline during the last quarter of 2019, pushing Japan into a technical recession.
Two consecutive quarters of shrinking GDP confirm that the world’s third-largest economy fell into a recession even before Prime Minister Shinzo Abe declared a national emergency for the pandemic in April. Analysts project a 21.5 percent contraction for the quarter through June, which would be a record for official data going back to 1955.
“There’s no doubt that this quarter has gotten much worse,” said economist Takeshi Minami at Norinchukin Research Institute. “Companies are struggling to secure funding and that suggests business investment will remain weak and many workers are concerned about their wages.”
Despite the rising sense of crisis, Japan so far appears to be doing less badly than other major economies. The U.S. and Canada are both forecast to shrink more than 25 percent this quarter, while the U.S. contracted 4.8 percent in the quarter ended in March.
In recent days, infection rates have plunged and the government last week lifted its state of emergency for 39 of the 47 prefectures, although Tokyo and other dense economic centers still remain under heavy restrictions.
Until stay-at-home requests are lifted, policymakers won’t be able to spur growth no matter how much money is spent, according to economist Taro Saito at NLI Research Institute.
While economists predict Japan’s economy will shrink at an annual pace of 22% in the April-to-June period, they also predict that the US could contract by more than 25%. The 3.4% annual rate of decline in the first quarter also compares favourably to the 4.8% the US suffered in the first three months of this year.
This was the sharpest decline for the US economy, the world’s biggest, since the Great Depression of the 1930s.
China, the world’s second largest economy, saw economic growth shrink 6.8% in the first three months of 2020 compared with a year earlier, its first quarterly contraction since records began.
Both of those economies have not yet been confirmed as having fallen into a technical recession, which is defined as two consecutive quarters of negative growth, but most economists expect them to in the coming months.