As we have been mentioning in our previous posts, the end of 2019 was a chaotic period. Brexit happened, leaving the United Kingdom and the European Union facing several backlash effects. Besides, some of the countries of the Eurozone are facing a decrease in their economies. With respect to Asia, Coronavirus and the trade war between China and the US is impacting not only China but many countries that have business with both or one of them. With the greatest economies collapsing, seeing that the Japanese economy is facing contraction is not a surprise.
In case you do not know, the economy of Japan is a highly developed free-market economy. It is also the third-largest in the world by nominal GDP. It is even greater than the economy of Germany, the greatest in Europe. Besides, Japan is the world’s second-largest developed economy and it is estimated to have a GDP per capita of around $38,490. It is a lot of money but, still, the country is facing a hard season of contraction. Below you will understand why this is happening now and why.
Understand the Japanese economy and its contraction
According to economists, the culprit of the contraction in the Japanese economy is a sharp drop in consumer spending after a sales tax hike. The loss is significant: at least 3.8 percent of contraction is estimated. Actually, this seems to be the worst slide for Japan since the second quarter of 2014. Back there, a previous tax increase prompted the economy of Japan to shrink by 7.4%.
As we mentioned in one of our previous posts, Coronavirus has the power of impacting more than the health of people. According to specialists, the new disease could delay or even derail a weak recovery forecast for early this year. Taking this dramatic view into consideration, many economists are predicting that the percentage of contraction will be worst than the one with 3.8%. For Hiroshi Miyazaki, an economist at Mitsubishi UFJ Morgan Securities, Japan should expect a 7.5 percent decline.
We cannot stress enough how trade deals and relationships between countries may strengthen or weaken their economies. While some economists are hopeful, thinking that the country will be able to avoid a recession, many are also revising down their projections. There is a concern that the impact of the virus in China will hit exports. This is something that is predicted to affect countries like the US as well. What will definitively happen is unknown, but there are good chances that the Japanese economy will take a while to recover.
Source: The Japan Times