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Japan’s economy was hit hard by the increase of its sales tax to 10% in the fourth quarter. The impact helped drive Japan’s GDP to an annualized loss of 6.3%, nearly double the worst estimate. Lining up to hammer the economy in the first quarter is the impact from the COVID-19 coronavirus emanating from nearby China. Megumi Fujikawa reports for The Wall Street Journal:
Following a dismal final quarter of 2019, Japan’s economy is facing the risk of a recession because the coronavirus outbreak is hurting tourism and production, while Germany’s central bank called on the government in Berlin to use its surplus to support growth as a broader danger of a slowdown builds.
Japan, the world’s third-largest economy after the U.S. and China contracted at an annualized rate of 6.3% in the October-December quarter, worse than economists’ forecast of a 3.9% contraction. The biggest reason was a sharp drop in private consumption after the national sales tax rose to 10% on Oct. 1 from 8%.
“Because of the effects of the novel coronavirus, weakness in consumption will likely continue in the January-March period. Exports and production could be dreadfully weak as the supply chain is interrupted,” said Daiwa Securities economist Mari Iwashita.
Some economists, including Ms. Iwashita, say Japan could fall into a technical recession—two straight quarters of contraction—this quarter. The contraction in the October-December quarter was the first in more than a year and the biggest since the April-June quarter in 2014, the last time the sales tax was raised.
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