Japan’s economy is flirting with recession, and the novel coronavirus could push it over the edge.
The world’s third-largest economy shrank 1.6% in the fourth quarter of 2019, according to a government estimate released Monday.
The fact that growth slowed in the three months to December wasn’t a surprise. Analysts had been expecting as much as the country absorbed a sales tax hike and grappled with the aftermath of Typhoon Hagibis, a powerful storm that hit the country last fall.
“A recession now looks all but inevitable,” said Robert Carnell, chief economist and head of research for the Asia Pacific at ING.
The spread of the disease is of worldwide concern because of how important China has become to the global economy. When the SARS epidemic broke out in 2004, China comprised roughly 4% of world GDP. Now it makes up 16% of global output and is the backbone of global manufacturing supply chains. It’s also home to hundreds of millions of wealthy consumers who spend a lot of money on luxury products, tourism, and cars.
The dent to tourism is a major problem for Japan, which welcomed 8.1 million Chinese tourists last year, according to the Japan National Tourism Organization. More people visited from China than any other country.
Analysts at Daiwa expect hotels, restaurants, and retailers to lose revenue if spending by Chinese guests dries up.
Carnell, of ING, wrote Monday that the coronavirus will likely weigh on consumer spending this quarter, contributing to the likelihood that Japan’s economy enters recession. ING forecasts GDP to decline by 1.1% for all of 2020.