Economists See Deeper Japan Recession on Virus Impact

(Bloomberg) -- Analysts see Japan falling into a deeper recession as data starts to show just how serious the coronavirus impact will be for the world's third-largest economy.

Barclays now sees Japan's economy shrinking 3.1% this quarter, far worse than the 0.3% growth projected by the bank previously, economists led by Tetsufumi Yamakawa wrote in a note to clients Tuesday. Goldman Sachs also cut its projection for Japan's gross domestic product, now saying it will fall 2.2%.

As recently as two weeks ago, analysts were projecting just a 0.25% contraction in Japan's GDP this quarter, according to the median forecast of a Bloomberg survey.

The bleak forecasts came after Prime Minister Shinzo Abe last week ordered schools shut nationwide and called for the cancellation of major events. Economists at Barclays and Goldman Sachs cited the decision as the main reason for slashing their forecasts.

Before that, the biggest worry for the economy had been the hit to supply chains linked to China and slower global export demand. Now Japan is also facing a deeper consumer slump.

“Quite frankly, I didn't expect the spread of the virus and the increase in the number of people staying at home to proceed at this pace,” BNP Paribas economists led by Ryutaro Kono wrote in a research report last week, citing the risk the economy could shrink more than 2%.

Incoming data also points to a big hit from the virus. An index of sentiment among purchasing managers at Japanese manufacturers dropped to its lowest level since 2016, a survey showed Monday. Sales at major Japanese department stores dropped by double-digits last month.

A 3% contraction this quarter could increase pressure on Abe to compile more fiscal measures. The premier said Tuesday that he won't hesitate to do so if needed. The economy shrank the most in more than five years in the last three months of 2019 amid weak exports and a consumer slump following a sales tax hike.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editors responsible for this story: Paul Jackson at pjackson53@bloomberg.net, Jason Clenfield

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