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Japan’s Economy is Contracting at a Record Pace

Japan recorded its largest economic contraction in Q2 as the coronavirus pandemic crushed business and consumer spending, putting policymakers under pressure to take bolder action to prevent a deepening recession.

Although the economy began to emerge from recession after easing the lockdown in late May, many analysts expect any rebound in growth from July to September to be modest because the continued resurgence of the increase in Corona cases limits consumer spending.

On Monday, government data showed that gross domestic product fell at an annualized rate of 27.8% during the April-June period, the largest drop since comparable data became available in 1980. This was the third consecutive quarterly contraction and slightly higher than the average market forecast. A decline of 27.2%.

“This significant decline can be explained by the drop in consumption and exports,” said Takeshi Minami, chief economist at the Norenchukin Institute of Research. “I expect growth to turn to the positive side during the quarter between July and September, but globally, the recovery will be slow everywhere except for China.”

Private consumption, which accounts for more than half of the Japanese economy, fell by 8.2% during the quarter, after general isolation measures to prevent the spread of the Corona virus led consumers to stay at home. The drop was the largest semi-annual decline on record and exceeded analysts’ expectations of a 7.1% drop. Capital spending decreased 1.5% in Q2, which is below the average market expectation of a 4.2% drop.

The data showed a decline in external demand, or exports minus imports, to a record level of three percentage points of gross domestic product after the pandemic led to a decline in global demand.

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