Japan economy shrank nearly 5% in 2020 due to Covid-19

Japan’s economy surged in the fourth quarter of 2020, but it wasn’t enough to keep the country from negative growth for the year in its first contraction since 2009, the BBC is reporting.

The world’s third-largest economy suffered its worst post-war quarterly contraction between April and June, as the global pandemic hit domestic consumption and exports.

Those two key drivers of the Japanese economy also fuelled a rebound in the second half of the year.

The economy beat expectations to grow by 3% between October and December compared to the same period in 2019 but growth was slower than in the previous quarter when the economy expanded by over 5%.

The growth figures come as Japan’s Nikkei index briefly hit 30,000 for the first time since 1990.

Private consumption, which makes up more than half of the economy, rose 2.2% in the final quarter of 2020, slowing from the 5.1% increase in the previous quarter.

Stronger economic growth globally in the third and fourth quarters also helped Japanese businesses sell more of their products overseas.

Annualised growth, which assumes the quarter’s growth will be maintained for the whole year was 12.7%, suggesting Japan could be on track for a strong and rapid recovery.

But growth is still fragile and could be hampered by pandemic restrictions aimed at limiting another wave of Covid-19.

Takumi Tsunoda, senior economist at Shinkin Central Bank Research, expects the recovery to struggle because Japan lags behind western economies in vaccine distribution.

“The conditions are such that Japan will not be able to avoid negative growth in the first quarter,” he told Reuters.

“There is a high possibility that there will be a repeating cycle of coronavirus infections spreading and being contained this year, which means that consumption is not likely to recover at the expected pace.”