Japan: Economy contracts for second consecutive quarter in Q1 2020
The economy contracted 3.4% in the first quarter of 2020 compared to the previous quarter in seasonally-adjusted annualized terms, which was less than both the 4.6% decrease market analysts had expected and the 7.3% contraction in Q4 last year. In year-on-year terms, the economy shrank 2.1% in Q1 (Q4: -0.7% year-on-year).
In seasonally-adjusted annualized terms, private consumption fell 2.8% in Q1, which was less steep than the 11.1% contraction in Q4, itself due to the sales tax increase in October. Private consumption suffered in the first quarter from lower consumer confidence. Government consumption growth moderated to 0.2% in Q1, down from 0.8% growth in Q4. Meanwhile, coinciding with a sharp fall in business confidence, fixed investment dropped 4.0% in Q1, following Q4’s 12.7% decrease.
On the external front, exports of goods and services sank 21.8% in Q1, which is the worst result since Q2 2011 and contrasts the 1.7% expansion in Q4. Imports, meanwhile, slumped 18.4% in Q1, down from the 9.3% decrease in Q4. Trade suffered in Q1 as China—Japan’s largest trading partner—grappled with its coronavirus outbreak in the quarter, shutting down much of its economy in the process. Moreover, Japanese travel restrictions likely hit services trade. Overall, the external sector detracted 0.8 percentage points from overall growth in Q1, contrasting the 2.1 percentage-point contribution in Q4.
Assesing the outlook for Q2, Robert Carnell of ING said: “Even though the state of emergency [which was announced in early April] has been criticized as being a half-hearted 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 much more in 2Q20 than any voluntary social distancing undertaken in 1Q20. On a more positive note, despite lacking the rigor of lockdowns elsewhere, Japan’s Covid-19 outbreak has shown clear signs of easing.”