Japan's Economy in Recession as Domestic and External Demand Decline in Q1 2020

Japan’s Economy in Recession as Domestic and External Demand Decline in Q1 2020

Posted Monday, May 18, 2020 by
Arslan Butt • 1 min read

Japan’s GDP data is out and officially reveals the first recession in the world’s third largest economy in over four years. According to government data, Japan’s economy contracted by 3.4% during Q1 2020, the second consecutive quarter of contraction indicating a technical recession.

While Q4 2019 GDP, which was revised to -7.3%, was driven lower by global trade tensions, the first quarter of this year was severely impacted by the coronavirus pandemic which put a strain on consumer consumption within the country and caused capital expenditure and exports to fall sharply as well.

On a slightly positive note, forever, the figure came in better than economists’ forecast, which was for a contraction of 4.6%. This is the first recession in the Japanese economy seen since H2 2015.

Domestic consumption in Japan fell by 0.7% during Q1 2020, but beat economists’ expectations for a 1.6% decline. Domestic consumption levels in the country had been under strain in the previous quarter as a fallout from the sales tax hike which was implemented in October 2019, and the coronavirus pandemic put additional pressure on these figures.

Meanwhile, exports were down by 6% in Q1 this year while capital expenditure contracted by 0.5% during Q4 2019, against economists’ forecast for a 1.5% decline. The decline in domestic demand drove Japan’s GDP lower by 0.7% even as external demand contraction accounted for a loss of 0.2% from the GDP.

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