The recession in Japan worsens with the largest drop in GDP in recent history

The pandemic caused the economy to contract by 7.8% between April and June, thus leading to three consecutive quarters of declines. Japan’s gross domestic product plummeted 7.8% in the second quarter of the year. This figure revealed on Monday morning by the Government, represents its biggest drop in seven decades. The paralysis of business activity due to the pandemic has severely punished the third world economy, already fragile, and exacerbates its recession after three consecutive periods in the red. After knowing these data, analysts see closer a new stimulus plan by the Government.

Although there is only evidence of quarterly variations since 1980, the Japanese authorities have indicated that the newly published data is considered the most pronounced decrease since 1955, the year to which the reference frame can be extended. Until now, the worst quarter corresponded to the first of 2009, when the global financial crisis reduced the country’s GDP by 4.8%.

The figures show that the reduction in private consumption by 8.2% compared to the previous quarter was an irremovable drag on the economy as a result of the state of alert declared between the beginning of April and the end of May, which kept consumers in their houses and shops with the blind down. Business investment also fell this same period; just like exports.

The newly released data marks the third consecutive quarter in the red for Japan. From October to December 2019, its economy contracted due to the entry into force of a VAT increase postponed up to two times; the damage caused by typhoons Faxai and Habigis; and the shock wave of the trade war between China and the United States. The country entered recession after losing another 0.6% from January to March when the virus began to spread through its territory. It is necessary to go back to 2011, when Japan was hit by the tsunami and the subsequent Fukushima nuclear disaster, to find the last time it had three consecutive negative quarters.

The Government has launched a robust stimulus program that has allowed the poor economic performance of the country not to translate into increased unemployment or the generalised bankruptcy of businesses. For now, it has approved two stimulus packages to face the impact of the pandemic, mobilizing up to 117 trillion yen each time, a total amount equivalent to 40% of its GDP. This is the second-largest response in the world, second only to the United States.

“We must protect businesses and employment by all means in the face of the tough road ahead”, Prime Minister Shinzo Abe declared at the time. Experts now predict that more aid could arrive in the autumn, an effort put into practice at the cost of increasing the enormous public debt equivalent to 230% of its GDP, a level unparalleled among advanced economies.

The speed of Japan’s recovery will largely depend on the evolution of the pandemic, which has seen a slight rebound in recent days. The country identified a thousand new infections on Sunday, bringing the total to some 56,000 confirmed cases, with more than 1,100 fatalities. The possibility of further lockdowns would make the road back to growth very steep. “If we go back to the way we used to live, infections will increase,” said Economy Minister Yasutoshi Nishimura, in an attempt to prevent transmission of the virus without slowing down economic activity.

“Although the country is in the midst of the second wave of COVID-19, the health care system is not yet overwhelmed and new infections have slowed down,” said Marciel Thieliant, senior economist for Japan from Eurasia in a report published on Monday. Monday by the consultant. Given its strong corporate balance sheets, its generous loan guarantee scheme and its low dependence on tourism, we believe Japan will recover more quickly than anticipated. We have traced a 4.5% rebound in GDP for the third quarter and we expect the economy to expand 3.5% in 2021 ”, he concluded.

Doubts about Abe’s health

Meanwhile, doubts about the progress of the national economy are added to those surrounding Shinzo Abe’s health. After several weeks away from the public eye and with a less busy schedule than usual, the president’s appearance at a Tokyo health centre has sparked a torrent of speculation. Abe was seen this morning accessing Keio University Hospital in the capital, where he went to undergo “a medical check-up,” according to the Kyodo News agency, citing a member of his team. Despite the questions, the prime minister’s office has not issued an official statement about it.

Abe, who will soon turn 66, is the prime minister who has held such responsibility for the longest – nine years. His premature resignation in 2007 after just one year in the post was already linked to health problems, as a result of a worsening of his chronic ulcerative colitis. The exact origin of this condition, which causes permanent inflammation and ulcers in the intestinal tract, is unknown, although it is believed that stress can act as an aggravation. When he ran again as a candidate in the 2012 general elections, his team claimed that the appearance of a new drug had allowed him to control the disease.

If it is confirmed that he suffers from health problems, this could accelerate the call for general elections, scheduled a priori for October 2021 and in which the most foreseeable is that Abe will renounce a new mandate to present a dolphin in his place in the ranks of the Liberal Democratic Party. Until then, economic stability will be the country’s first concern, but not the only one.