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Japan's economy shrinks at record pace amid pandemic

Japanwas hit by its biggest economic contraction on record in the second quarter as the coronavirus pandemic crushed consumption and exports, keeping policy-makers under pressure for bolder action to prevent a deeper recession.

Economists cite decrease in consumption and exports

Japan's third straight quarter of declines knocked the size of real gross domestic product to decade-low levels, wiping out the benefits brought by Prime Minister Shinzo Abe's stimulus policies deployed in late 2012. (Kim Kyung-Hoon/Reuters)

Japanwas hit by its biggest economic contraction on record in the second quarter as the coronavirus pandemic crushed consumption and exports, keeping policy-makers under pressure for bolder action to prevent a deeper recession.

The third straight quarter of declines knocked the size of real gross domestic product (GDP) to decade-low levels, wiping out the benefits brought by Prime Minister Shinzo Abe's "Abenomics" stimulus policies deployed in late 2012.

While theeconomyis emerging from the doldrums after lockdowns were lifted in late May, many analysts expect any rebound in the current quarter to be modest as a renewed rise in infections keeps consumers' purse strings tight.

"The big decline can be explained by the decrease in consumption and exports," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"I expect growth to turn positive in the July-September quarter. But globally, the rebound is sluggish everywhere except for China."

The world's third-largesteconomyshrank an annualized 27.8 per cent in April-June, government data showed on Monday, marking the biggest decline since comparable data became available in 1980 and slightly bigger than a median market forecast for a 27.2 per cent drop.

Japan, the world's third-largesteconomy,shrank an annualized 27.8 per cent in April-June, government data showed on Monday. (Kim Kyung-Hoon/Reuters)

While the contraction was smaller than a 32.9 per centdecrease in the United States, it was much bigger than a 17.8 per centfallJapansuffered in the first quarter of 2009, when the collapse of Lehman Brothers jolted global financial markets.

The size ofJapan's real GDP shrank to 485 trillion yen, the lowest since April-June 2011, whenJapanwas still suffering from two decades of deflation and economic stagnation.

Consumption plunges

The main culprit behind the dismal reading was private consumption, which plunged a record 8.2 per centas lockdown measures to prevent the spread of the virus kept consumers at home.

External demand or exports minus imports shaved a record 3.0 percentage points off GDP, as overseas shipments plunged 18.5 per cent, with auto exports hit particularly hard.

Falling global vehicle sales have hurt automakers like Mazda Motor Corp. and Nissan Motor Co., among the biggest drivers ofJapan'seconomy, and their parts suppliers.

Capital expenditure declined 1.5 per centin the second quarter, less than a median market forecast for a 4.2 per centfall, as solid software investment made up for weak spending in other sectors.

EconomyMinister Yasutoshi Nishimura conceded the GDP readings were "pretty severe," but pointed to some bright spots such as a recent pickup in consumption.

"We hope to do our utmost to pushJapan'seconomy, which likely bottomed out in April and May, back to a recovery path driven by domestic demand," he told a news conference.

Japanhas deployed massive fiscal and monetary stimulus to cushion the blow from the pandemic, which hit aneconomyalready reeling from last year's sales tax hike and the U.S.-China trade war.

While theeconomyhas reopened after the government lifted state of emergency measures in late May, a worrying resurgence in infections cloud the outlook for business and household spending.

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