Japan fell into a recession for the first time since 2015, as its already weakened economy was dragged down by the coronavirus’s impact on businesses at home and abroad.
The world’s third-largest economy after the United States and China shrank by an annualized rate of 3.4 percent in the first three months of the year, the country’s government said on Monday.
That makes it the largest economy to officially enter a recession, often defined as two consecutive quarters of negative growth. Other major economies around the world are set to follow, joining Japan as well as Germany and France in recession, as efforts to contain the outbreak ripple around the globe. The experiences of China, where the outbreak first emerged in December and January, suggest recovery will be long and difficult.
Japan will find it no easier. Initial figures for the April-to-June period show its economy will be slammed by efforts to contain the outbreak.
“The economy entered the coronavirus shock in a very weak position,” said Izumi Devalier, chief Japan economist at Bank of America Merrill Lynch, but “the real big ugly stuff is going to happen in the April, June print. It’s going to be three quarters of very negative growth.”
Ms. Devalier added, “It’s not a very encouraging picture.”
Businesses had already been staggering before the coronavirus hit.
Consumer spending dropped after the Japanese government in October increased a tax on consumption to 10 percent from 8 percent, a move that Prime Minister Shinzo Abe’s administration said would help pay down the national debt — the highest among developed nations — and fund the growing demand for social services as the country’s workers age.
Days later, a typhoon slammed into the country’s main island, inflicting enormous damage and further driving down economic activity.
Even before that, Japanese export numbers had fallen steadily all last year on slowing global demand and the fallout from the U.S.-China trade war.
The situation has only worsened this year. The outbreak crushed Japan’s exports, forced it to postpone the Olympics and then put the country on a soft lockdown as it joined other nations scrambling to stop the coronavirus.
“The emergency declaration stopped people from going out, leading to a substantial decline in consumption,” said Kentaro Arita, a senior economist at the Mizuho Research Institute, a think tank in Tokyo. Now, he said, “it is going to be impossible to avoid an impact on the scale of the global financial crisis or even worse.”
Schools shut down, the country closed itself off to most of the world and, in mid-April, Mr. Abe declared a national state of emergency that led many people to stay home from work and businesses to close.
On the health front, the efforts seem to have paid off. Cases rose briefly before receding. The country’s health system never became overwhelmed. The total number of deaths attributed to the outbreak was under 750 as of Sunday, far lower than in other major developed nations.
But each of those decisions had a profound economic impact. School closures forced parents to stay home from work and hammered farms and dairies that make their living selling ingredients for school lunches. Canceling foreign visas obliterated tourism and stopped a source of critical foreign labor. The lockdown has slowed or stopped work at many large companies and devastated the country’s many small and midsize enterprises, particularly those in the service sector.
For more than a month, Tokyo’s bustling business districts have been largely shuttered. Foot traffic dropped by 70 percent at the world’s busiest train station in Shinjuku, according to a report by NHK, the public broadcaster. Tourist sites across the city that are normally thronged with visitors have been eerily quiet.
Last week, the streets of the trendy Harajuku shopping district — which typically attracts shoulder-to-shoulder crowds in good weather — were largely empty, with just a few pedestrians walking by boutiques that had closed or drastically cut back their hours.
Recent data hints at the likely severity of the hit to the current quarter’s growth.
Visitors to Japan in March dropped by 93 percent year-on-year to just over 190,000 people, according to the Japan National Tourism Organization. April’s consumer confidence index plummeted to a lower reading than in the aftermath of the 2008 financial crisis or the 2011 Fukushima nuclear meltdown. Exports dropped by more than one-fifth in the first 20 days of the month alone. A monthly survey of economic watchers reached a historic low, concluding that “the already extremely severe economic conditions due to the impact of the coronavirus will worsen further.”
April may prove to be the nadir.
On Friday, Mr. Abe announced he was lifting the state of emergency on all but eight of the country’s prefectures earlier than initially expected — a move that could give the economy a boost. The government will decide on next steps for the remaining areas, which include the economic powerhouses Tokyo and Osaka, within the month.
Still, it could still be a long time before economic activity returns to anything approaching what it was, according to Sayuri Shirai, a professor of economics at Keio University in Tokyo and a former board member of the Bank of Japan.
Tourism, which has been a small but important driver of growth, could take years to rebound, she said. Businesses such as hotels and restaurants that had taken out loans in anticipation of the Olympics might now find themselves unable to meet their obligations.
“Depending on the sectors that were generating economic growth before Covid-19 will not be possible in the coming years,” she said.
“For many years, I think private sector activity will be very weak. That means the government will have to continue to support economic activity.”
The government has already approved a $1.1 trillion stimulus package, a sum that would have seemed large a year ago. But with the United States having already committed nearly twice that amount to prop up its economy, Japan — which in the past was often criticized for its use of debt-funded stimulus — is in the unusual position of being chided for not spending enough on its recovery plan.
Mr. Abe on Thursday said the government was discussing more measures to prop up the economy.
Job losses might be stemmed by Japan’s tight labor market and by rigid hiring practices that make it difficult to lay off employees. But keeping people in jobs is not sufficient to guarantee that domestic demand will recover, according to Ms. Devalier, of Bank of America Merrill Lynch.
“Even though Japan will come out much better than other countries, particularly the United States, when it comes to the loss in employment, it doesn’t mean there hasn’t been a shock to wages and income and sentiment,” she said.
Those conditions can create an “adverse feedback loop,” Ms. Devalier said, where a weak recovery in demand makes people more cautious, driving down demand further.
To avoid that, she said, will require more assistance for households and businesses: “It just comes down to the fact that the government is going to have to do more.”
Makiko Inoue contributed reporting.