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Japan's record 2nd-qtr GDP fall revised to steeper 28.1% shrinkage

People wearing face masks head to work near JR Tokyo Station on July 16, 2020. (Kyodo)

TOKYO (Kyodo) -- Japan's economy in the April-June period shrank an annualized real 28.1 percent from the previous quarter, a sharper contraction than the initially reported record shrinkage of 27.8 percent, as business investment slowed amid the coronavirus pandemic, revised government data showed Tuesday.

    The decline in real gross domestic product, the total value of goods and services produced in the country adjusted for inflation, corresponds to a 7.9 percent decrease on a seasonally adjusted quarterly basis, contracting for the third consecutive quarter, according to the Cabinet Office.

    In the second quarter of 2020, private consumption bore the brunt of the government's state of emergency to curb the virus spread, under which local governments asked people to stay at home and nonessential businesses to suspend operations. Hard lockdowns in many major cities abroad, meanwhile, hit exports such as cars.

    The fall in GDP is the largest on record dating back to 1955, the earliest point at which the government can trace reference values, according to a Cabinet Office official. Comparable data are available from the April-June quarter of 1980.

    Japan's GDP began to contract in the October-December period of last year with an annualized 7.0 percent fall due to the consumption tax hike from 8 percent to 10 percent in October and the continued impact of the U.S.-China trade spat.

    The economic situation worsened during the state of emergency, which was first declared in Tokyo and six other areas in early April and later expanded to the whole nation before being fully lifted in late May.

    "The revision was too modest to change perceptions on the severe economic situation," said Yoshiki Shinke, chief economist at the Dai-ichi Life Research Institute.

    "Business investment is a lagging indicator of the economy, so it may continue to slow the economic recovery," Shinke said.

    The annualized size of real GDP stood at 484.84 trillion yen ($4.6 trillion), slightly down from the preliminary figure of 485.18 trillion yen, and down from 526.54 trillion yen in the first quarter of 2020. It fell below the 500 trillion yen level for the first time since 498.05 trillion yen was posted in the last quarter of 2012.

    On a quarterly basis, capital expenditure dropped 4.7 percent from the previous quarter, sharply deteriorating from the 1.5 percent fall in the initial data released last month.

    The revision reflected corporate financial results for the three-month period released by the Finance Ministry last week, which showed investments by Japanese firms falling 11.3 percent from a year earlier.

    The decline in capital spending was the steepest on a year-on-year basis since the January-March period of 2010, when the figure plunged 11.5 percent in the aftermath of the global financial crisis, according to the ministry.

    Private consumption, which accounts for more than half of Japan's economy, decreased 7.9 percent, upgraded from the initial reading of an 8.2 percent drop, and remained the largest fall on record. The official told reporters that the entertainment sector performed better than initially expected.

    An 18.5 percent drop in the country's exports of goods and services, including spending by foreign tourists, and a 0.5 percent decrease in imports in the reporting quarter remained unchanged from the initial readings.

    Public investment was up 1.1 percent, downgraded from a 1.2 percent increase. Government spending declined 0.6 percent, revised down from a 0.3 percent slide.

    Nominal GDP, which is not adjusted for inflation, contracted an annualized 27.2 percent, downgraded from a 26.4 percent shrinkage.

    For the July-September term, many analysts expect Japan's GDP to grow by more than 10 percent on an annualized basis from the previous quarter as economic activity has been gradually resuming after the end of the virus emergency. But the rebound is expected to fall far short of regaining ground lost due to the pandemic.

    Shinke said, "It will be noteworthy whether private consumption recovers steadily. It has already shown signs of being at a stalemate in July and August."

    "Boosted by a rebound in exports, the economic upturn itself will last even after the July-September period, but I'm not sure until when its momentum will be sustained," he added.

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