Japan: Further deterioration of the GDP on the cards – UOB

FXStreet reports that Alvin Liew, the senior economist at UOB Group, gives his opinion on the latest GDP figures in the Japanese economy.

“Japan’s 1Q 2020 GDP recorded another contraction but it was not as bad as expectations, at - 0.9% q/q (-3.4% annualized rate)… All major GDP segments (including private consumption, business spending, public demand, net exports and private inventories) declined, contributing to the 1Q weakness.”

“Despite the more benign 1Q decline, Japan’s outlook has definitely worsened in light of the COVID-19 pandemic and the measures taken to contain the spread, and we see Japan facing significant challenges due to the virus impact, on both trade and the domestic economy.”

“The real test of the severity of the COVID-19 driven GDP contraction will be in the current quarter, 2Q 2020. We have further revised our forecast of the 2Q contraction to be more severe, at -5% q/q (-18.6% annualized rate). This is slightly worse than the sharpest contraction Japan experienced during the great recession in 2008/2009 (at -4.8% q/q, -17.8% annualized rate in 1Q 2009) while some polls expect the contraction to exceed 20%, potentially the worst decline on record.”

“While the copious amounts of fiscal and monetary stimulus will help cushion some of the economic fallout, we believe it is inevitable Japan will enter a full recession this year. Based on the significant downgrade in the 2Q outlook, we now expect Japan full-year GDP to contract by 5.5% in 2020 (from +0.7% in 2019).”