Japan has to claw its way out of a deeper hole than other big industrial nations
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Despite being written off by sceptics as an economic wasteland for the past three decades, Japan has often managed to scrape by, and has even enjoyed periods of sustained growth. The Covid-19 pandemic will test whether the country really has nine lives. GDP shrank at annualised rate of 27.8% in the second quarter, the government reported on Monday.
As with its Group of Seven peers, the slump reflects big parts of an economy under lockdown. Like the US, the UK and Germany, Japan is likely to rebound to some extent through the end of the year. Japan will probably manage a 3.2% expansion in 2021, says Bloomberg economist Yuki Masujima.
Look a little closer, though, and Japan’s situation is worse than other big industrial nations in some important respects. Monday’s numbers mark the third consecutive quarter of contraction. Even before the nationwide state of emergency was announced, the country was already in a recession — thanks to an ill-timed consumption tax hike in October, which sliced 7% off GDP in the final three months of 2019. Some of the 8.2% slide in private consumption last quarter is likely attributed to lingering damage from the levy.
Japan’s spat with South Korea, which sparked a mini-trade war, compounded the corrosive effect of the broader US-China economic conflict. Fast forward a number of years, and the picture is still grim.
The Japan Centre for Economic Research, a think-tank, says the country is unlikely to return to prepandemic growth until 2024. And that’s assuming a baseline scenario in which a lot goes right: the Olympic Games proceed, the pandemic crisis abates this year and travel gradually returns to some semblance of normal. Even then, the coronavirus will have left scars that will constrain the economy well into the 2030s.
Government debt will surge to 270% of GDP, up from about 200% now. Tax rates will need to rise. The unemployment rate will climb to 9%. Companies will be focused on debt repayment, which will limit wage increases. The outbreak’s after-effects will be worsened by the persistent competition between the US and China, JCER predicts, and the possible division of the world into rival blocs.
That pessimistic view is in line with the theme of a June paper published by the National Bureau of Economic Research (NBER) that looks at the effects of the coronavirus on the US economy.
Banking crash
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As with its Group of Seven peers, the slump reflects big parts of an economy under lockdown. Like the US, the UK and Germany, Japan is likely to rebound to some extent through the end of the year. Japan will probably manage a 3.2% expansion in 2021, says Bloomberg economist Yuki Masujima.
Look a little closer, though, and Japan’s situation is worse than other big industrial nations in some important respects. Monday’s numbers mark the third consecutive quarter of contraction. Even before the nationwide state of emergency was announced, the country was already in a recession — thanks to an ill-timed consumption tax hike in October, which sliced 7% off GDP in the final three months of 2019. Some of the 8.2% slide in private consumption last quarter is likely attributed to lingering damage from the levy.
Japan’s spat with South Korea, which sparked a mini-trade war, compounded the corrosive effect of the broader US-China economic conflict. Fast forward a number of years, and the picture is still grim.
The Japan Centre for Economic Research, a think-tank, says the country is unlikely to return to prepandemic growth until 2024. And that’s assuming a baseline scenario in which a lot goes right: the Olympic Games proceed, the pandemic crisis abates this year and travel gradually returns to some semblance of normal. Even then, the coronavirus will have left scars that will constrain the economy well into the 2030s.
Government debt will surge to 270% of GDP, up from about 200% now. Tax rates will need to rise. The unemployment rate will climb to 9%. Companies will be focused on debt repayment, which will limit wage increases. The outbreak’s after-effects will be worsened by the persistent competition between the US and China, JCER predicts, and the possible division of the world into rival blocs.
That pessimistic view is in line with the theme of a June paper published by the National Bureau of Economic Research (NBER) that looks at the effects of the coronavirus on the US economy.
Banking crash
According to authors Julian ...
