Japanese Sales Tax Triggers 6 Pct Economic Contraction

The coronavirus outbreak has pushed Japan to the brink of a recession as tourism slides and spending drops in response to a sales tax hike, The Wall Street Journal (WSJ) reported on Monday (Feb. 17).

Japan, the world’s third-largest economy after the U.S. and China, contracted at an annualized rate of 6.3 percent in the October-December quarter, missing analysts’ expectations of a 3.9 percent contraction. A dip in private consumption was blamed on the hike in the national sales tax to 10 percent on Oct. 1 from 8 percent.

“Because of the effects of the novel coronavirus, weakness in consumption will likely continue in the January-March period. Exports and production could be dreadfully weak as the supply chain is interrupted,” Mari Iwashita, an economist at Daiwa Securities, told WSJ.

Iwashita is among the economists that fear Japan could face a “technical recession” — two consecutive quarters of contraction — this quarter. 

Germany’s central bank is asking Berlin to use its surplus to support growth. Europe’s largest economy has been in the midst of a near two-year slowdown over international trade tensions. The coronavirus outbreak in China added to the slowdown.

“In addition, some global value chains could be affected by the security measures taken. Delivery bottlenecks in individual industries in Germany would be the result,” the Bundesbank said, adding that any drop in China’s economy is likely to have a negative effect on German exports.  

“There is clearly room for maneuver within the framework of the government budget rules,” the Bundesbank wrote in its monthly report. “This could be used to improve the conditions for growth and employment.”

Singapore said it downgraded its 2020 growth forecast to a 0.5 percent contraction from 1.5 percent growth over the coronavirus outbreak. The country’s Ministry of Trade and Industry said China’s slowdown would have a ripple effect across Southeast Asia due to supply-chain disruptions and reduced Chinese import demand.

Malaysia is planning a stimulus package to help the economy. “Emphasis should also be placed on exploring alternative revenues such as shifting towards encouraging domestic tourism, and sourcing from other markets,” Finance Minister Lim Guan Eng said.

China’s coronavirus is having a negative impact on Southeast Asia and the eurozone’s already-sluggish economy.