Pandemic sets Japan on course for deep recession

Employees of a restaurant wearing protective suits against the spread of the new coronavirus walk through China Town in Yokohama, near Tokyo, Friday, May 8, 2020. (AP)
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Updated 09 May 2020

Pandemic sets Japan on course for deep recession

  • The country’s service sector has been hit hard, but catering and gaming businesses report spike

TOKYO: Japan’s household spending plunged in March and service-sector activity shrank at a record pace in April, reinforcing expectations that the coronavirus pandemic is tipping the world’s third-largest economy into deep recession.

Overtime pay — a barometer of strength in corporate activity — also plunged at a record pace in March, data showed, a sign companies were hit by shrinking business even before the government announced a state of emergency in early April.

The weak readings make it a near certainty the economy suffered a second straight quarter of contraction in January-March, the technical definition of a recession, and was on track for a deeper decline in the current quarter as the health crisis kept shoppers home and businesses closed.

“Even without the virus, Japan’s economy was very weak due to the hit from last year’s sales tax hike. The pandemic has completely destroyed any chance of a recovery,” said Taro Saito, executive research fellow at NLI Research Institute.

“The economy may rebound somewhat in July-September but won’t return to pre-coronavirus levels for the rest of this year,” said Saito, who expects the economy to contract an annualized 30 percent in the current quarter.

Household spending slumped 6.0% in March from a year earlier following a 0.3 percent fall in February, marking the biggest drop in five years, government data showed on Friday.

The decline, a tad smaller than a median market forecast for a 6.7 percent fall, was due largely to plunging demand for travel, clothing and eating out as the government asked citizens to refrain from going out and some businesses to shut down.

There were some winners with firms that provide catering for people at home seeing increased business.

Spending on pasta jumped 44 percent as people cooked at home more often, while purchases of gaming consoles more than doubled as school closures kept children housebound. However, those increases were not enough to make up for the plunging demand for other items.

The data will likely drag on preliminary first-quarter gross domestic product (GDP) data due on May 18. Analysts polled by Reuters expect Japan’s economy to contract an annualized 4.6 percent in the January-March period.

Many analysts expect the economy to plunge by at least 20 percent in the current quarter, piling pressure on the government to top up an already massive $1.1 trillion stimulus package to cushion the economic blow from the pandemic.

With infections in Japan exceeding 15,000, the government extended a state of emergency on Monday through to the end of the month, pressuring companies to shut down factories and stores longer than previously expected.

Other data paint a similarly bleak picture on the outlook.

Japan’s services sector shrank at the fastest pace on record in April as a huge blow to demand from the outbreak hurt business activity, a business survey showed.

Inflation-adjusted real wages fell in March for the first time in three months as overtime pay slumped 4.1 percent from a year earlier, falling at the fastest pace on record.

Tom Learmouth, an economist at Capital Economics, expects Japan’s job market to worsen sharply in coming months and push down wages of retailers hit by the pandemic.

“Looking ahead, leading indicators are pointing toward a spike in the unemployment rate – we think it will climb to 4.2 percent toward the end of this year,” he said.

“Corporate profits are no doubt falling fast so total pay will be dragged down further by a slump in bonus payments.”

Japan’s jobless rate stood at 2.5 percent in March.

The health crisis hit an economy that already suffered a contraction in the final quarter of last year due to the hit on consumption from an October sales tax hike. 

Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.


This section contains relevant reference points, placed in (Opinion field)

An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”