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Japan’s GDP contracts first time in six years due to sales tax hike

Japan GDP
Japan’s GDP contracted an annualised 6.3 percent during the period from October to December 2019

Japan’s fourth quarter GDP shows that the economy contracted sharply in six years on the back of a sales tax hike affecting consumer and business spending. This in turn is anticipated to lead the economy into a recession, media reports said.

According to analysts, the outbreak of coronavirus is also responsible for the economic contraction. Japan’s GDP contracted at an annualised 6.3 percent during the period from October to December 2019. Its economic contraction is sharper than a median market forecast of 3.7 percent drop, according to government data.

It is the country’s first economic decline in five years, media reports said. The last fall took place in the second quarter of 2014. Capital expenditure dropped 3.7 percent in the fourth quarter last year, which is higher than a median forecast for a 1.6 percent drop.

Taro Saito, executive research fellow at NLI Research Institute, told the media, “There’s a pretty good chance the economy will suffer another contraction in January-March. The virus will mainly hit inbound tourism and exports, but could also weigh on domestic consumption quite a lot.”

Previously, Japanese policymakers had warned that the economy will contract during the period from October to December. They had attributed the contraction to US-China trade war and sales tax hike that could affect consumption and factory output.

Now investors are assessing the situation closely to see whether the country’s economic growth will rebound in the current quarter. Last month, the Bank of Japan kept the monetary policy steady in a hope that global growth will rebound mid-year, media reports said.

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