Recession Hits Japan, Economy Shrinks By 3.4%

TOKYO (News Desk): Japan’s economy, world’s third largest economy, landed in the recession zone due to COVID-19 breakout. Official data indicated a 3.4% decline in the first quarter of 2020.

The world’s third-largest economy reported decline of an annualized 3.4% in the January-March period, following a 7.3% contraction in the previous quarter when the national sales tax rose to 10% from 8%.

The coronavirus pandemic has reduced spending by households and companies. Private consumption fell 0.7% on quarter while capital expenditures by companies dropped 0.5%.

Japan’s economy is expected to be shrunk at an annualized rate of 20% or more in the current quarter. Prime Minister Shinzo Abe declared a national state of emergency in April, which led many stores and restaurants to close.

Izumi Devalier, chief Japan economist at Bank of America Merrill Lynch told New York Times: “The economy entered the coronavirus shock in a very weak position, the real big ugly stuff is going to happen in the April, June print. It’s going to be three quarters of very negative growth.”

The COVID-19 outbreak dropped Japan’s exports significantly, forced it to postpone the Olympics. As purchasing activity stopped, companies started reporting problem.

Analysts believe this will have direct impact on the US stock market because Japanese investors will start pulling out investment to meet requirements in their hometown.

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