Japan is Likely Entering Recession Territory in Q1 2020

Not enough is made of the world's 3rd largest economy. Recent we learned that Japan’s economy shrank at an annualized rate of 0.6 percent in the January-March period. Annualised gross domestic product (GDP) fell by a much steeper than expected 6.3% in October-December.

With the threat of a Coronavirus outbreak with 60 cases, and community spread taking place in Tokyo among other locations, Japan's 2020 economic prospects could be very grim.

The world’s third largest economy has been battling deflation for 20 years. According to CNBC, last wednesday’s data marked the end to eight straight quarters of economic expansion, which was the longest sequence of growth since a 12-quarter run between April-June 1986 and January-March 1989 during the asset-inflated bubble economy.

Japan’s economy shrinks at fastest pace in 6 years, virus clouds outlook

With tourism already way down, If Covid-19 takes hold in Japan the country is likely to experience an economic recession of two quarters of negative growth. Japan's economy stagnated in the 1990s after its stock market and property bubbles burst. Companies focused on cutting debt and shifting manufacturing overseas. Wages stagnated and consumers reined in spending. In a way, Japan never truly recovered.

Since the novel coronavirus is active in the world's 2nd and 3rd biggest economies and with China, Japan and Germany already vulnerable, many analysts believe we are underestimating the economic impact of the virus, travel bans, quarantines and their economic cost.

Japan could enter a recession in the first quarter of 2020 and the chances are rather high.

Let's face it, Japan is a preview of things to come for many parts of the world. Japan’s ageing population is now making the problem and challenges ahead more striking. Aging populations have yet to hit other countries like China, the U.S. and others but soon will. By 2020, Japan will be losing around 600,000 people a year. Getting growth from an ageing, shrinking society is difficult.

Volatility on the Japanese stock market, negative interest rates and now worse than expected GDP figures all serve intensify scrutiny of Japan's economic stability. Compared to the previous quarter, gross domestic product (GDP) fell 0.2 percent, more than the median estimate for GDP to be flat. Even in China a return to factories is only really partial after the Lunar Year break due to the uncertainty and pressure of the new coronavirus.

Japanese bank Nomura has predicted that China’s economy is facing its biggest slowdown since the Tiananmen Square massacre in 1989. This is bound to impact the GDP of surrounding countries. Most of Japan's tourism comes from China.

Singapore’s Ministry of Trade and Industry downgraded its forecast range for the change in the country’s annual gross domestic product to between -0.5% and 1.5%. China's economy is growing much more slowly than it was in 2003, when the SARS outbreak hit. In 2020, China plays a much bigger role in the global economy. Outbreaks in Singapore and Hong Kong will have a detrimental impact on South-East Asia's economy in early 2020.

How could these early signs not have a cascade effect on the global economy? Singapore has reported one of the highest numbers of coronavirus infections outside China, with 77 confirmed cases as of today. Japan is expected to catch up soon and become the most infected place outside of China.

Wall Street is in denial about the economic impact on China of the virus and in hos disruptive it will be and in how long it will take to recover. The world is also in denial about how detrimental a potential outbreak would be for Japan's economy. It's bad timing for Prime Minister Abe and the viability of his Abenomics program.

Analysts say the widening fallout from the epidemic, which is damaging output and tourism, could undermine growth in the current quarter and push Japan into recession — defined as two straight quarters of decline.

Japan's contraction is the biggest fall since the second quarter of 2014, when consumption took a hit from a sales tax hike in April of that year. With the timing of Covid-19, it could not be worse for Japan.

Thailand posted its slowest expansion in five years and China’s home prices rose at their weakest pace in almost two years. The worrying human and economic toll of the COVID-19 outbreak is creating much uncertainty and I don't think Japan will be sparred. Its spread of the virus in hospitals and taxi drivers is worrisome.

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. If both China and Japan show continued impact of the novel coronavirus, the world will be hard pressed to show any GDP growth in early 2020.

The virus’s ripple effects are hitting Japan particularly hard: China is its largest trading partner and by far its biggest source of visitors, many of whom come ready to shop. This does not seem likely to change anytime soon, with an outbreak out of control in China, and potentially just starting in Japan as of mid February, 2020.

If you include the cruiseship the Princess Diamond, Japan has well over 400 confirmed cases. At least 400,000 travelers from China are expected to cancel trips through March, according to data from the Japan Association of Travel Agents. Japanese airlines have suspended flights as demand has plummeted. Japanese tourist spots are having their turn to be the next ghost-towns and that is not good for a vulnerable Japanese economy.