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Economy

Abenomics recovery stopped in tracks by coronavirus

Japan downgrades view to 'severe situation,' closing book on six-year run

The government's March report is the first in six years and nine months to not use the term "recovery." (Photo by Akira Kodaka)

TOKYO -- The Japanese economy has fallen into a "severe situation" and is "extremely depressed" from the coronavirus, the government warned Thursday, bringing down the curtain on years of optimism and the Abenomics-driven recovery since 2013.

The bleak assessment in its monthly report for March is in line with the view of many private-sector economists that a contraction had already begun under the weight of Japan's recent consumption tax hike, even before the virus began to take its toll.

"An economy that had been recovering moderately has clearly taken a different direction and entered a declining phase," said Economic and Fiscal Policy Minister Yasutoshi Nishimura, who is in charge of the government's monthly reports, at a news conference.

Until last month, the government had maintained that the economy was "recovering at a moderate pace" in its monthly reports for roughly two years since January 2018. It used the word "recovery" in its report for July 2013 -- about half a year after Shinzo Abe began his second run as prime minister -- when the economy was described as showing "some movements on the way to recovery" following the devastation of the March 2011 earthquake and tsunami.

Abe's government has since never failed to include "recovery" in its reports in one way or another, using such phrases as "on the way to recovery at a moderate pace" and "on a moderate recovery trend."

As the U.S. and China intensified their trade war in the latter half of 2018, the global economy started slowing, stalling exports that had powered the Japanese economy and dampening production. This past October's long-delayed consumption tax hike to 10% from 8% depressed both consumer spending and business investment that had driven demand until then, shrinking the economy in the final quarter of 2019 -- the first contraction in five quarters.

Even with four downgrades in its assessment last year, the government maintained a tone of the economy rebounding mildly. But the school closings and event cancellations caused by the virus delivered a body blow to the underlying economy, leading to the gloomy language of the March report. The new report is the first in six years and nine months to not use the term "recovery."

The Abe government had until now focused on maintaining employment and income, using their stability as the main grounds for sticking with its "recovery" view. It also had reason not to downgrade the economic assessment significantly around the time of the tax increase. Such optimism is now unsustainable as the pandemic pushes down job openings, as well as part-time wages in certain industries.

Private-sector economists say the economy is already in recession, with many estimating that the recovery peaked in October 2018 or the spring to autumn of 2019, right before the tax hike.

"Negative growth is certain to continue for three quarters, until the April-June term," predicted Yoshiki Shinke, chief economist at the Dai-ichi Life Research Institute, saying the rebound peaked in October 2018. "Employment will be affected in the service industry, where many people work as part-timers or temps."

With the coronavirus continuing to spread, demand is unlikely to bottom out anytime soon both at home and abroad.

The Abe government has described the recent recovery as Japan's longest postwar expansion. But if a Cabinet Office panel of experts determines that the economy actually peaked in October 2018, the claim would prove illusory by falling short of the 73-month streak of February 2002 to February 2008.

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