Japan’s economy on brink of recession after shrinking 6.3% in latest quarter

Tourism industry set to take further hit from coronavirus, adding to impact of higher sales tax and damage from typhoon, experts warn

Japan’s economy is on the brink of recession after shrinking dramatically in the final three months of 2019.

The world’s third-largest economy contracted 6.3 per cent in the quarter compared with the same period a year earlier, with analysts warning that a further hit is likely to come from coronavirus.

Analysts had been expecting Japan’s growth to slow thanks to a rise in sales tax, the fallout from a powerful typhoon and the continuing effects of a trade war between America and China.

Consumer spending slumped 2.9 per cent after the Japanese government raised the sales tax to 10 per cent from 8 per cent. Capital spending was down 3.7 per cent and exports dipped 0.1 per cent.

“Consumer spending, which slumped following the tax hike in the fourth quarter of 2019, will now struggle to do anything except contract further in the first quarter as the impact of Covid-19 weighs on consumer sentiment, weighing in particular on the consumer services sector,” said Dutch bank ING in a report.

“Some further government spending may help to curb any further contraction in GDP beyond the first quarter of 2020.

Ratings agency Moody’s said coronavirus could severely dent the global economy if it grows to pandemic proportions.

“There is already evidence – albeit anecdotal – that supply chains are being disrupted, including outside China.

“Furthermore, extended lockdowns in China would have a global impact given the country’s importance and interconnectedness in the global economy.”

Moody’s downgraded its global growth forecast to 2.4 per cent this year from its previous estimate of 2.6 per cent. China’s economy is now predicted to expand 5.2 per cent, down from 6.1 per cent last year.

The Independent