Mount Fuji, Japan

Japan GDP Q2 2020

Japan: GDP records largest contraction on record in Q2

According to a preliminary estimate, GDP contracted a record 27.8% in seasonally-adjusted annualized terms (SAAR) in the second quarter, well below the 2.5% contraction recorded in the first quarter and reflecting the harsh impact of the coronavirus pandemic on activity. On an annual basis, GDP dropped 7.8% in Q2 from the previous period’s 0.6% decrease.

The downturn in SAAR terms was spearheaded by a plunge in private consumption, while public spending and fixed investment also contracted. Private consumption fell 28.9% in the second quarter, which was well below the first quarter’s 3.1% contraction, as restrictions enacted during the state of emergency in April–May hampered household spending. Government spending dropped at the sharpest pace since Q2 2018, contracting 1.0% (Q1: +0.1% SAAR). Furthermore, fixed investment was down 2.9% in Q2, contrasting the 1.9% increase recorded in the prior quarter.

On the external front, exports of goods and services plummeted 56.0% in Q2, marking the worst result since the first quarter of 2009 (Q1: -19.9% SAAR), as disrupted supply chains and lockdown measures in key international markets sapped demand for Japanese goods. Conversely, imports of goods and services contracted at a milder rate of 2.1% in Q2 (Q1: -15.6% SAAR). As such, the external sector detracted 10.8 percentage points from overall growth in Q2, markedly below the 0.9 percentage-point subtraction in Q1.

Looking forward, growth is expected to return in the third quarter, as an easing of restrictions both domestically and abroad brings a rebound in household consumption and exports. Furthermore, the significant and sustained fiscal and monetary stimulus packages announced during April and May will begin to flow through to the economy, bolstering the recovery somewhat.

Regarding the outlook, Ma Tieying, an economist at DBS, commented:

“Negative growth is very likely to turn around in 3Q, thanks to the easing of lockdown and reopening of the economy. The Japanese government has fully lifted the nationwide state of emergency in late May. Domestic private consumption has bounced back since then. Retail and recreation activities have risen notably from their bottoms, with the gaps with the normal levels narrowing to -11% in July from -14% in June and -30% in May (measured by Google’s location services data). [However], the overall outlook in 2H remains fragile. The risk of the recovery turning into a W cannot be ruled out. Japan has been hit by a second wave of infections and the situation has deteriorated.”

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