Japan’s economy with strong downward trend

In the final quarter of 2019, the Japanese economy contracted by -1.6 percent (Q /Q), much more than expected. That overall demand would fall was unavoidable due to the increase in value-added tax on October 1, 2019. But now, despite all the measures taken by the government to cushion the VAT shock, the sharpest negative rate in five and a half years has been reported. At the end of the year, consumption alone fell by almost 3 per cent compared with the previous quarter.
However, it was not only the higher consumption tax that had a dampening effect, but also the typhoons last October. November and December were unexpectedly warm, leaving winter clothing on the shelves of retailers and causing sales losses. Japan’s exports, on the other hand, were also down due to weaker demand from China, as were corporate investments. For 2019 as a whole, the economy as a whole is now expected to grow by 0.8 percent.
There is growing concern that Japan could remain in „shrinking mode“ for the time being. In any case, the downside risks have increased considerably as a result of the coronavirus. The virus has already hit Japan’s tourism industry hard. The spending Chinese, who accounted for around a third of foreign visitors to Japan last year, are staying away because Beijing has imposed travel bans. These could last even longer than the beginning of spring. But demand for Japanese preliminary and end products has also collapsed due to the corona epidemic and the current production restrictions in China. This is placing an enormous burden on the Japanese export sector.
With the slump in growth at the end of 2019, the statistical basis for growth this year has now also deteriorated: a large statistical underhang has emerged. The average growth rate for 2020 could even turn negative again in the worst case and for the first time since 2011. At the same time, the sentiment among companies and private households has not yet recovered to such an extent that one could expect an early and rapid economic turnaround. In view of the current problems, with the coronavirus in the first place, the negative risks clearly outweigh the negative risks.
None of these are encouraging prospects for Japan, which is currently preparing to host the Olympic Games. Nobody in Japan may even think about the possibility of cancelling the summer games in Tokyo, but this scenario is not impossible. This would be a shock for the Japanese.

Translated with www.DeepL.com/Translator (free version)

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