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Japan may be on brink of recession amid coronavirus fear

"The economy had been supposed to continue to recover moderately," Economic and Fiscal Policy Minister Yasutoshi Nishimura said at a press conference. (AFP)
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18 Feb 2020 03:02:44 GMT9
18 Feb 2020 03:02:44 GMT9

TOKYO: Japan seems to be on the brink of falling into recession, as the country is taking a hit from the unabated outbreak of a new coronavirus from China after its economy plunged in October-December 2019 due partly to the impact of a tax hike.

The viral outbreak is weighing on growth in the current January-March period, raising concerns that the world's third-largest economy may contract for the second consecutive quarter in a phenomenon known as "technical recession."

Japanese government data showed Monday that the nation's seasonally adjusted gross domestic product in the last three months of 2019 shrank a real 6.3 pct from the preceding quarter on an annualized basis, down for the first time in five quarters, because of a setback in demand following the consumption tax hike to 10 pct from 8 pct at the beginning of October and damage from powerful typhoons that hit Japan during the period.

"The economy had been supposed to continue to recover moderately," Economic and Fiscal Policy Minister Yasutoshi Nishimura said at a press conference after the release of the GDP data, indicating that the impact of the coronavirus outbreak has disrupted the government's scenario that its stimulus measures would help keep the economy afloat.

To mitigate the tax hike effect, the government, among other measures, introduced a reward point program for shoppers using cashless payment methods, expanded tax cuts for housing loan borrowers and launched a program for free-of-charge nursery and kindergarten services, as well as keeping the consumption tax rate at 8 pct for foods and some other products.

These measures helped limit the rate of year-on-year fall in private consumption in October-December at 2.9 pct and that in housing investment at 2.7 pct, compared with the drops of 4.8 pct and 9.1 pct, respectively, in April-June 2014, after the consumption tax rate was hiked to 8 pct from 5 pct on April 1 that year.

Still, Taro Saito, head of the NLI Research Institute's Economic Research Department, said that Japan's GDP will shrink a real 1.6 pct at an annual rate in the current quarter partly reflecting falls in the number of visitors from China and Japan's exports to the country amid the coronavirus crisis.

Many industry people are worried about the impacts of the new virus. The outbreak "will affect the parts supply chain," said Katsuhiro Miyamoto, executive vice president of Nippon Steel Corp.

Some expect that the coronavirus outbreak will die down between April and June, in light of the experience of the severe acute respiratory syndrome, or SARS, epidemic in 2002-2003. But there is no such guarantee.

“We need to bear in mind the possibility that the impact of the novel coronavirus could be larger" as the Chinese economy has grown bigger compared with the early 2000s.

The Japanese government and central bank will surely face stronger pressure to compile new stimulus measures if the coronavirus-related confusion remains for an extended period of time and continues undermining the economy, pundits said.

JIJI Press

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