Japan saw its gross domestic product (GDP) fall by 7.8% in the quarter of April to June, the worst decline on record, due to the impact of the coronavirus pandemic.
The 7.8% quarterly decrease is based on the previous quarter but the GDP of Japan actually fell by 27.8% on an annualized basis. Despite being the third largest economy in the world, the country has been struggling economically even prior to the onset of the coronavirus pandemic.
Economic Recession
Earlier this year, Japan fell into recession for the first time since 2015 due to impact of the continued escalation of the coronavirus pandemic.
The country posted a 3.4% decline in its gross domestic product (GDP) during the first quarter of 2020, which was preceded by a 6.4% fall during the last quarter of 2019, pushing its economy into a technical recession.
This was despite Japan not going into full national lockdown and opted to issue a state of emergency in April. severely affecting supply chains and businesses, which were heavily dependent on trade.
Aside from the impact of the coronavirus, Japanese consumers were also affected by the sales tax increase implemented in October, raising it from 8% to 10%.
Stimulus Package
In May, the Japanese government announced a stimulus package worth $1.1 trillion, a huge part of which will be used to cushion the economic impact of the coronavirus crisis.
The 117 trillion yen fresh stimulus package from the government will be compiled on Wednesday. The draft shows that the fund will include 33 trillion yen in direct spending.
Moreover, to ensure the funding for the costs, Japan will release an additional 31.9 trillion yen in government bonds through the second supplementary budget for the current fiscal year ending in March 2021.
“We must protect business and employment by any means in the face of the tough road ahead. We must also take all necessary measures to prepare for another wave of epidemic,” Prime Minister Shinzo Abe said during a meeting with ruling party lawmakers.
Government officials pointed out that the new package will involve measures such as an increased medical spending, assistance to firms that are not able to pay rent, support for students without part-time jobs, and more subsidies to companies suffering from low or lack of sales.
Based on the draft, the government will also allocate 10 trillion yen for reserves that can go to emergency spending.
In the same meeting, Abe explained that the government will separately release up to 140 trillion yen in financial aid to companies in Japan that are struggling due to the coronavirus pandemic.
Latest decline
The latest quarterly decrease in GDP is the biggest decline Japan has seen since comparable figures became available in 1980 and was slightly higher than analysts' forecasts.
One of the main reasons for the GDP fall is the dramatic decrease in domestic consumption, which comprises over 50% of the country's economy, coupled with a sharp decline in exports as the pandemic affected global trade.
This is the third consecutive quarter of GDP decline Japan, marking the country's worst economic performance since 1955. It places additional pressure on the economy, which has been struggling following the 10% tax hike in 2019 and the damage from typhoon Hagibis.
