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Japanese economy shrank at the fastest pace in 6 years

17 Feb 2020 12:03 PM

The Japanese economy contracted at the fastest pace in nearly six years in the last quarter of 2019, as the sales tax hike last year affected consumer and business spending, highlighting the fragile outlooks that have been exacerbated by the increased risk of the Coronavirus.

Analysts say the implications of the growing epidemic, which is hurting production and tourism, could undermine growth in the current quarter and push Japan into recession - which is defined as two consecutive quarters of decline.

According to analysts, if this epidemic was not contained at the time of the Tokyo Olympics, the damage to the economy would be enormous.

Government data today showed that Japan's gross domestic product contracted by 6.3% annually in the fourth quarter, which is much faster than the average market expectation of a decrease of 3.7% and the first decline in five quarters.

This was the biggest drop since the second quarter of 2014, when consumption was affected by the sales tax hike in April of that year.

Weak data also comes amid signs of conflict with the spread of the Corunavirus and greater vulnerability in demand.

Japanese stocks fell, with the benchmark Nikkei index and the broader Topix down more than half a percent by midday break.

The recent increase in sales tax in October of last year - in addition to the unusually warm weather that affected winter item sales - affected private consumption, which fell 2.9% larger than expected, marking the first drop in five quarters.

The data showed that capital spending fell 3.7% in the fourth quarter, much faster than the median forecast for a decrease of 1.6% and the first decline in three quarters.

Weak capital spending - one of the few bright spots in the economy - casts doubt on the Bank of Japan's view that growth will continue to expand moderately as strong domestic demand offsets weak exports.

Economy Minister Yasuchi Nishimura said that the government is ready to take all necessary steps and monitors the impact of the Corona Virus outbreak on the economy and tourism in particular.

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