May 8, 2020 / 4:32 AM / 2 months ago

Japan likely slipped into first recession since 2015 as spending collapsed - Reuters poll

TOKYO (Reuters) - Japan’s economy likely shrank for a second straight quarter in the first three months of this year, a Reuters poll showed, meeting the technical definition of recession as the coronavirus pandemic wiped out consumption and business activity.

FILE PHOTO: A woman, wearing protective mask following an outbreak of the coronavirus disease (COVID-19), walks on an almost empty street in the Dotonbori entertainment district of Osaka, Japan, March 14, 2020. REUTERS/Edgard Garrido

Gross domestic product (GDP) data, due out on May 18, is likely to show the world’s third-largest economy contracted an annualised 4.6% in the January-March period, a poll of 14 analysts showed on Friday.

That would follow a 7.1% decline in the previous quarter, which was blamed on the hit to consumption from a domestic sales tax hike rolled out in October. The two straight quarters of decline would be the first recession since 2015.

“After a huge slump in October-December, one would expect growth to rebound. But what probably happened was a further drop in growth. It will be very weak data,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“Almost all components likely worsened. Private consumption, in particular, was hit hard and dragged on overall growth,” he said.

Consumption, which makes up more than half of Japan’s economy, likely fell 1.6% in January-March from the previous quarter, the poll showed.

Capital expenditure is also expected to have declined 1.5% after a 4.6% drop in October-December, the poll showed, a sign companies are holding off on spending due to uncertainty over how long it takes for the pandemic to be contained.

External demand’s contribution to GDP growth is expected to be negligible, the poll showed.

The first-quarter preliminary GDP data will be released at 8:50 a.m. on May 18 (2350GMT, May 17).

Many analysts expect the economy to suffer an even deeper contraction in the current quarter, as the government’s decision to declare a state of emergency in April intensified the drive for citizens to stay home and businesses to close.

With infections in Japan exceeding 15,000, the government extended a state of emergency on Monday through to the end of the month, pressuring companies to shut down factories and stores longer than previously expected. [nL4N2CM1ER]

Reporting by Leika Kihara; Editing by Sam Holmes

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