Japan’s economy is on the verge of a recession, and the novel coronavirus threatening to disrupt global economic output may push it over the edge.
In the fourth quarter of 2019, Japan’s economy shrank 1.6 percent, a government estimate released last week revealed. The drop is the biggest decline since 2014. The fourth quarter drop was expected due to a recent sales tax increase and the after-effects of Typhoon Hagibis, which hit the country last fall, but conditions could get even worse in the near future as a pandemic threatens the world’s economy.
In December the Japanese government announced a $120 billion stimulus package aimed at providing the foundation for future growth, but the timing of the coronavirus could mean it makes little difference. The virus has spread from its epicenter in China around the world. There are now over 70,000 confirmed cases and more than 2,500 deaths worldwide at the time of publication, and both figures are rising daily.
Japan has more than 400 confirmed cases so far, the majority of which have originated on the cruise ship The Diamond Princess which is docked off Yokohama. Japan now fears the outbreak could curtail spending in the country, as consumers seek to avoid crowded places.
The biggest hit to the Japanese economy will be the loss of Chinese tourists, who provide the biggest source of income to Japan’s tourism industry – 8.1 million Chinese visited the country last year. Exporters in the country also face a stretch of weak demand, particularly as production is affected in China, Japan’s biggest trade partner.
A recent Bloomberg survey showed that nine out of 14 polled economists predicted Japan’s economy would shrink again in the quarter ending March. The third largest economy in the world is not the only country worried of the impact the novel coronavirus could make.
Thailand announced economic growth slowed in the last quarter, and fears a collapse in tourism and disruption to factory output could compound the situation. Singapore downgraded its economic outlook for this year because of the spread of the virus.