Japan was hit by its biggest economic contraction on record in the second quarter as the coronavirus pandemic crushed consumption and exports, keeping policymakers under pressure for bolder action to prevent a deeper recession.
The third straight quarter of declines knocked the size of real gross domestic product (GDP) to decade-low levels, wiping out the benefits brought by Prime Minister Shinzo Abe’s “Abenomics” stimulus policies deployed in late 2012.
While the economy is emerging from the doldrums after lockdowns were lifted in late May, many analysts expect any rebound in the current quarter to be modest as a renewed rise in infections keep consumers’ purse-strings tight.
“The big decline can be explained by the decrease in consumption and exports,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
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“I expect growth to turn positive in the July-September quarter. But globally, the rebound is sluggish everywhere except for China.”
The world’s third-largest economy shrank an annualized 27.8 per cent in April-June, government data showed on Monday, marking the biggest decline since comparable data became available in 1980 and slightly bigger than a median market forecast for a 27.2 per cent drop.
0:38 Coronavirus: Tokyo committee says meeting will be organized to plan for COVID-19 ‘counter-measures’
Coronavirus: Tokyo committee says meeting will be organized to plan for COVID-19 ‘counter-measures’
While the contraction was smaller than a 32.9 per cent decrease in the United States, it was much bigger than a 17.8 per cent fall Japan suffered in the first quarter of 2009, when the collapse of Lehman Brothers jolted global financial markets.
The size of Japan’s real GDP shrank to 485 trillion yen, the lowest since April-June 2011, when Japan was still suffering from two decades of deflation and economic stagnation.
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(Click here for an interactive graphic of real and nominal GDP since 2011: https://tmsnrt.rs/2Fwq2JK)
CONSUMPTION PLUNGES
The main culprit behind the dismal reading was private consumption, which plunged a record 8.2 per cent as lock-down measures to prevent the spread of the virus kept consumers at home.
External demand – or exports minus imports – shaved a record 3.0 percentage point off GDP, as overseas shipments plunged 18.5 per cent, with auto exports hit particularly hard.
Falling global vehicle sales have hurt automakers like Mazda Motor Corp and Nissan Motor Co, among the biggest drivers of Japan’s economy, and their parts suppliers.
2:37 Canadian economy recovering after pandemic lockdown
Canadian economy recovering after pandemic lockdown
Capital expenditure declined 1.5 per cent in the second quarter, less than a median market forecast for a 4.2 per cent fall, as solid software investment made up for weak spending in other sectors.
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Economy Minister Yasutoshi Nishimura conceded the GDP readings were “pretty severe,” but pointed to some bright spots such as a recent pickup in consumption.
“We hope to do our utmost to push Japan’s economy, which likely bottomed out in April and May, back to a recovery path driven by domestic demand,” he told a news conference.
Japan has deployed massive fiscal and monetary stimulus to cushion the blow from the pandemic, which hit an economy already reeling from last year’s sales tax hike and the U.S.-China trade war.
While the economy has re-opened after the government lifted state of emergency measures in late May, a worrying resurgence in infections cloud the outlook for business and household spending.
(Reporting by Leika Kihara and Tetsushi Kajimoto, additional reporting by Kaori Kaneko and Daniel Leussink; Editing by Sam Holmes)
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
