Asian storm: why the Japanese economy fell record for five years

In the fourth quarter of 2019, Japan's GDP collapsed immediately by 6.3% compared to the same period in 2018. According to the government’s assessment, the economic decline that has occurred has become the largest in more than five years.

In many ways, experts attribute the worsening economic situation to a sharp reduction in Japanese production and exports. Thus, the volume of deliveries of goods from Japan abroad has been continuously decreasing for 13 consecutive months. This is stated in the materials of the Customs Administration of the country.

“An important role in the Japanese economy is played by sales of construction and manufacturing equipment, which is currently in much less demand due to emerging problems in the global economy,” explained Arseniy Dadashev, director of the Academy of Financial and Investment Management, in an interview with RT.

The decline in exports weakened business activity in the country's manufacturing sector. According to the calculations of the analytical agency IHS Markit, the corresponding PMI index has remained below the psychological mark of 50 points for nine months already. Traditionally, this situation indicates the stagnation of the industry.

“It is worth noting that production in Japan is still quite expensive and not very efficient. Therefore, most large investors leave the country and increasingly prefer to invest in enterprises in other countries of the region, ”said Alexei Maslov, head of the HSE School of Oriental Studies, RT.

Experts explain the decline in production by weak domestic demand. In recent years, Japanese authorities have tried to revive consumer activity and poured large volumes of unsecured money into the economy. The actions of the country's leadership should have led to an increase in population spending, an increase in domestic demand and investment.

At the same time, the injection of money into the economy did not meet the expectations of the Japanese authorities and led only to excessive borrowing of the country. According to the Institute of International Finance (IIF), today the total debt of the population, companies and government is more than five times the size of the Japanese economy and amounts to 540% of GDP.

According to experts from countries of the Organization for Economic Cooperation and Development (OECD), over the past 27 years, the Japanese budget has exceeded revenues. Thus, to service a huge public debt, the country constantly has to take new loans.

At the same time, budget expenditures continue to increase against the background of ever-increasing spending on health care and social security due to the problem of an aging population. In order to replenish the treasury more actively, in 2019, the Japanese authorities increased the sales tax from 8% to 10%. However, this decision further weakened consumer demand and also hit the economy.

“In many ways, such a large drop in GDP occurred precisely because of an increase in the sales tax, with the help of which it was planned to deal with the consequences of the aging of the country's population. The last time the government raised the tax rate in 2014, which also had a very serious negative effect on the economy, ”said Arseniy Dadashev.

According to Alexei Maslov, the high tax burden puts pressure not only on Japanese citizens, but also on the country's entrepreneurs. So, today in Japan there is a tax on doing business, the amount of which is up to 30% of profit for national companies and up to 41% for foreign enterprises.

“Today in Japan more and more disputes arise about the need to reduce taxes and conduct tax maneuvers. At the same time, the government is afraid to expose its budget and therefore does not carry out tax reforms, ”the expert explained.

A step away from the crisis

According to Arseny Dadashev, in 2020 the situation in the Japanese economy may further deteriorate, and the country risks facing a full-blown recession. One of the reasons for this situation, the expert believes the decline in production in neighboring China due to the spread of coronavirus.

“The aggravation of the situation with coronavirus in China, the main driver of the global economy, could result not only in a decline in production in China, but also in the destruction of supply chains, which would hamper development in other countries. In this regard, the manifestation of a full-fledged recession in Japan is only a matter of time, ”the expert emphasized.

Recall that at the end of December 2019, the authorities of Chinese Wuhan reported an outbreak of a respiratory infection of unknown origin. According to local experts, the cause of the disease was a new type of coronavirus COVID-19. To date, the number of people infected in China has exceeded 70.5 thousand, and 1770 people have died.

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Cases of the disease are already registered in Beijing, Shanghai and other major cities of the country. At the same time, the virus began to spread outside of mainland China. Cases of the disease recorded in several countries in North America, Europe and Asia, including Japan.

“Under current conditions, we can say that in the first half of 2020, production in Japan will fall by 5-8%. And this is very serious for Japanese industry, ”emphasized Alexey Maslov.

According to experts, the industrial downturn and the possible onset of a recession in the third largest economy in the world could lead to a drop in demand and commodity prices. At the same time, according to Maslov, against the background of a simultaneous slowdown in the economy of China and other countries of the region, world trade risks risk collapsing by 15% in 2020.