Japan posted a record economic contraction in the second quarter, with recovery prospects now hinging on how quickly an uptick in virus infections can be contained.
The world's third-largest economy contracted an annualized 27.8% in the three months through June from the previous quarter as a state of emergency and lockdowns in the country's major export markets hammered consumer spending, production and exports.
Until the pandemic, the economy's worst single quarter for data back to 1955 was during the global financial crisis, when gross domestic product shrank about 18%. Now, after three straight quarters of contraction, the economy has shrunk back to its size after the 2011 tsunami and nuclear disaster.
While more recent monthly figures show signs of a recovery in retail sales and factory output, the nascent recovery will lose momentum if the number of infections prompts the government to re-tighten limits on economic activity. The size and form of possible additional government measures are also dependent on the trajectory of the virus.
"If we just go back to the way we used to live, infections will rise," said Economy Minister Yasutoshi Nishimura, calling on people and companies to think about ways to prevent transmission of the virus while at the same time increasing economic activity.
Mr. Nishimura said the government would do all it could to protect jobs and livelihoods and defended the administration's efforts to support the economy, pointing out that other major countries had suffered more. Still, he said it was possible the government would re-introduce a state of emergency if infections jump.
The figures showed:
- Private consumption fell an annualized 28.9% from the previous quarter, accounting for almost 60% of the slide in GDP.
- Business investment dropped 5.8%, faring much better than analysts expected.
- Net exports of goods and services subtracted 3 percentage points from GDP, on a non-annualized basis.
As deep as Japan's recession has been, it has still fared better than other major economies that have been hit harder by the pandemic and have struggled more to contain it. In the U.S., where the virus rages on, GDP shrank by nearly a third last quarter. The European Union's economy contracted by 39% and the U.K.'s by almost 60%, also on an annualized basis.
Japan's death toll of just over 1,100 is still tiny compared with the U.S. and some other countries, but a recent jump in new infections — with another 645 confirmed in the capital over the weekend and total cases now topping 56,000 nationwide — shows it is still too early to discard fears over the outbreak re-escalating.