Cogito Ergo Non Serviam
Japan's Economy Shrinks 6.3% in 4Q 2019
The Japanese economy shrank a massive 6.3% in the last quarter of last year, falling by 6.3%. The figure is compared to the previous quarter, and the Cabinet Office released the number this morning. Driving the decline were an increase in the sales tax and the effects of Typhoon Hagibis. The slowdown may persist through this quarter thanks to the outbreak of the coronavirus in neighboring China, which supplies many Japanese businesses with inputs. As a result, the chances of the third largest economy falling into recession are rising.
The government is always upbeat at times like this. Governing is a glass-half-full art. "We can expect a gradual improvement," Yasutoshi Nishimura, minister for economic and fiscal policy, said after the data were published. He added that the government would take steps to address the declining number of inbound tourists, the Chinese economic slowdown and related supply-chain disruptions, and heightened uncertainty in financial markets. These are likely to include use of government reserve funds in place for just such a situation.
The Nikkei Asian Review reported this morning, "The Japanese government in December approved 13.2 trillion yen ($120 billion) in stimulus spending to cushion the impact of the tax hike. Prime Minister Shinzo Abe's government also plans to implement an extra budget to counter the effects of the virus outbreak."
Those whose jobs depend on getting the forecast right rather than rosy are less certain. "The sharp drop in output after October's sales tax hike supports our view that Japan's economy will shrink this year," Capital Economics wrote in a note after the data was published. "But after today's release, our forecast of a 0.2% drop in GDP in 2020 looks optimistic.
"While real GDP could rebound somewhat in January-March from the sharp negative growth in October-December, growth is likely to be sluggish, with the negative impact of the novel coronavirus having a negating effect," said Naohiko Baba, Goldman Sachs' chief Japan economist.
The effect of the coronavirus will be small compared to the effect the fear of the coronavirus has on the country and the region (indeed the world). People will scale back on coming into contact with others as much as possible. In cities like Tokyo, there is only so much one can do, but people will go to fewer movies, eat out less, and spend less time engaged in social activities where money changes hands. Products are less susceptible to this than services, but services make up over two-thirds of the Japanese economy.
The virus may burn a long time, and the longer it burns the worse it will be for the economy. Thailand, for example, says that if the virus outbreak continues into June, growth for this year will fall to 1.5% from 2.9% last year. Singapore has already said that it expects continued sluggish growth in the range of 0.5-1.5%. In Japan, the effects are likely to be greater as the economy is more closely tied to the China's.
Longer term, there is potential for the Japanese economy to make up some of the lost ground. The effects of the outbreak and the typhoon have delayed not eliminated a great deal of consumption. The sales tax will have a more lasting effect in damping down demand. Next year, Japan may well be recovered both from the virus and the economic troubles it brought.
However, it goes to show how interconnected the global economy is. The saying once was that when America sneezed, Europe got a cold. Now, the sneeze can start anywhere, and the cold is worldwide. The effects just tend to be more severe the closer one is to the sneeze. Japan will take some time to recover from China's illness.
© Copyright 2020 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.
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