(Bloomberg) — Japan has sunk into a recession that’s likely to deepen further as the full force of the coronavirus pandemic hits economies around the globe.
The world’s third-largest economy shrank an annualized 3.4% in the three months through March from the previous quarter as exports slid and social distancing crimped consumer spending, official figures showed Monday, confirming the second-straight quarterly contraction.
Even with a partial lifting of restrictions on economic activity in recent days, other major economies are expected to join Japan in recession in the current quarter as households limit spending to essentials and companies cut investment, production and hiring to stay afloat amid the devastating fallout of the virus.
Policy makers will also need to consider more than just their approaches to restarting their economies, as the pandemic triggers a reassessment of priorities.
“The post-coronavirus world won’t be a return to the pre-corona world,” said Masaki Kuwahara, an economist at Nomura Securities.
“There’ll be more need to control risk for contagious diseases. And the changes won’t be limited to just contagious diseases. Various themes of sustainability will also weigh more on people’s minds,” he added, suggesting that societies may now become more tolerant of inefficiency in the economy if it results in more sustainability and safety.
Worse to Come
While Japan’s drop in gross domestic product was slightly better than an expected 4.5% fall, helped by stronger-than-expected consumption and business spending before the pandemic escalated, analysts and policy makers agree that worse is in store in the current quarter.
“There’s no doubt that this quarter has gotten much worse,” said economist Takeshi Minami at Norinchukin Research Institute, noting that Prime Minister Shinzo Abe’s April declaration of a state of emergency and tougher restrictions on activity came in early April. “Companies are struggling to secure funding and that suggests business investment will remain weak and many workers are concerned about their wages.”
Despite the rising sense of crisis, Japan so far appears to be doing less badly than other major economies.
China, where the virus first spread, shrank 9.8% last quarter on a non-annualized basis from the previous three months. That translates into a drop of close to 40% in terms comparable with Japan’s.
The U.S. economy contracted 4.8% in the first three months of the year, but is expected to shrink more than 30% this quarter in annualized terms. Canada is seen shedding more than 40% of GDP.
For Japan, analysts forecast a 21.5% contraction in the three months through June, a record for official data going back to 1955.
More Aid
The crisis has put pressure on policy makers in Tokyo to step up stimulus measures that, at a record 117 trillion yen ($1.1 trillion), already total more than 20% of GDP by the broadest measure.
Economy Minister Yasutoshi Nishimura, speaking Monday after the GDP report, said the government is aiming to pass a second extra budget swiftly to get more aid to businesses and households and warned of the risk of the economic pain deepening even more.
BOJ’s Lending Under Virus Program Triples After April Tweaks
The Bank of Japan last month lifted its ceiling on government bond purchases as the government ramps up spending. The BOJ is also expected to introduce another lending program for small companies at an emergency meeting that could come as early as this week.
In recent days, rates of new virus infections have fallen in Japan and the government last week lifted its state of emergency for 39 of Japan’s 47 prefectures, although Tokyo and other dense economic centers still remain under heavy restrictions.
Until stay-at-home requests are lifted, policy makers won’t be able to spur growth no matter how much money is spent, according to economist Taro Saito at NLI Research Institute.
“For now, they have to spend money to prevent job losses and bankruptcies,” Saito said. “We’re not at a stage where the Bank of Japan can boost demand with monetary easing, and the BOJ will focus on corporate financing for now.”
Export Slide
Japan’s policy makers also have little control over the world’s demand for the country’s exports, a main driver of growth that could stay depressed for a long time. Even though key overseas markets are starting to reopen from lockdowns, progress will come in fits and starts, with the risk of new infection waves looming.
Monday’s report showed exports dropped almost 22% last quarter on an annualized basis, the biggest decline since the 2011 tsunami. Corporate earnings forecasts from automakers and other manufacturers suggest the decline is likely to steepen. Toyota Motor Corp., Japan’s largest company, sees profits tumbling 80% this fiscal year.
What Bloomberg’s Economist Says
“Looking ahead, our high frequency data dashboard is pointing to more pronounced weakness in the economy in 2Q. Even if Prime Minister Shinzo Abe lifts the state of emergency by end-May, we doubt the economy will pick up until 3Q, at the earliest — and even then, the strength would hinge on recoveries in the U.S. and Europe.”
–Yuki Masujima, economist
Click here to read more.
(Adds economist comments on post-virus pandemic world)
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
