by Mish Shedlock, The Maven:
The lead image is from Coronavirus Threatens Japan Rebound as GDP Falls Most in 5 Years.
Blue text and square anecdotes are mine.
The BBC reports Japan’s Economy Shrinks at Fastest Rate Since 2014
Annualised gross domestic product (GDP) fell by a much steeper than expected 6.3% in October-December. There are also concerns the coronavirus outbreak will mean the slump continues this quarter. That has raised fears that the world’s third-biggest economy may fall into recession.
During the period Japanese consumer spending fell 2.9% after the country’s sales tax was raised in October to 10% from 8%. In the same month Typhoon Hagibis hit large parts of the country. Last quarter, capital spending dropped by 3.7% and exports slipped 0.1% amid the ongoing US-China trade war.
Investors are now watching to see whether the economy will rebound after the coronavirus forced China to shut down factories and led to a big drop in Chinese tourists visiting Japan.
How about a little realism here?
The Japanese economy shrank 6.3% annualized even before the coronavirus impact.
The number of reported new cases of coronavirus in China’s Hubei province rose on Monday after two days of falls, as authorities imposed tough new restrictions on movement to prevent the spread of the disease which has now killed more than 1,700 people.
With no end in sight for the outbreak, Japan and Singapore appeared to be on the brink of recession with data on Monday pointing to possible contractions in the current quarter.
Across China many factories remain closed following the extended Lunar New Year holiday, disrupting supply chains around the world. Virus-related damage to Japan’s economy is expected to show up in the current quarter, stoking fears of recession in the world’s third-largest economy.
Fears of recession, or already in recession?
The New York Times reports Japan’s Economy Shrank Sharply. Now Comes the Coronavirus.
After hits from storms and a tax increase, the world’s No. 3 economy could face recession as the outbreak takes a toll on tourism.
Japan’s economy has already been staggered by a devastating typhoon and a wallet-shutting tax increase. Now, the coronavirus that has brought business in neighboring China to a virtual standstill threatens to knock Japan into a full-blown recession.
If Japan’s economy — the world’s third largest after the United States and China — shrinks again in the first quarter of 2020, the country will officially fall into recession for the first time since a brief dip in 2015. A recession is generally defined as two straight quarterly contractions.
I will come back to that definition in just a bit but it is not a good definition nor is it accurate.
Third Fatal Mistake
The Wall Street Journal reports Japan’s Third Sales-Tax Blunder Must Be Its Final Mistake.
Japan’s economy shrank sharply in the final three months of 2019, logging its second-worst quarter in the past decade. That would be easier to stomach if it weren’t because of a mistake policy makers have now made three times.
In October, Japan raised its sales tax to 10% from 8%—and spending tanked. Household consumption fell 11.5% on an annualized basis in the October-December quarter, fueling a 6.3% fall in annualized gross domestic product.
Sales-tax increases in 1997 and 2014 likewise knocked the economy off course. The three worst quarters for household consumption in the past quarter-century were those in which sales tax was raised.