Japan’s economy heading for recession, and Germany wobbles

Japan’s economy is heading for a recession this year after figures showed the world’s third largest economy slumped by an annual rate of 6.3% during the last quarter of 2019.

Germany, the world’s fourth largest economy, is also expected to stumble as the coronavirus epidemic and a slump in trade with China combine with weak consumer demand to drag growth lower.

The German central bank, the Bundesbank, said on Monday the country’s major industrial sectors – from cars to chemicals – were continuing to see a fall in orders “albeit with a decrease in intensity”.

“However, economic risks exist with regard to the coronavirus outbreak in the People’s Republic of China,” the bank’s latest report said.

With two of the largest exporting nations signalling that they are in trouble, economists have begun to rewrite their forecasts for growth for the global economy in 2020.

Germany, say Moody’s analysts, will cling to a 1% growth rate this year and Japan will recover, but only slightly, to register a 0.3% growth rate.

However, the plunge in Japan’s output at the end of 2019, which amounted to 1.6% quarter on quarter, is expected to drag down growth in the current quarter and possibly the next. A technical recession is defined as two consecutive quarters of falling output.

Moody’s, the credit ratings agency, said the impact of the coronavirus on China and Japan’s economy would be widely felt, and not just in major trading partners such as Germany.

The euro area more broadly is expected to grow by 1.2% in 2020, only modestly better than the 1.1% growth rate registered in 2019. Meanwhile the UK will outpace only Italy and Japan among the major economies, after Moody’s held its projections of Britain’s GDP growth for this year and 2021 at 1%.

The firm also reduced its growth forecast for China to 5.2% in 2020 and maintained its expectation of 5.7% growth in 2021, down from 6% last year, which was the lowest for 30 years.

Phillippe Waechter, chief economist at Ostrom Asset Management, said the timing of a VAT increase in Japan had had an unfortunate impact on growth after 18 months of battles between China and the US over trade tariffs.

Japan’s economy minister, Yasutoshi Nishimura, said the government was ready to take all necessary steps and was watching the impact the coronavirus outbreak could have on the economy and specifically tourism.

The Japanese economy should also get a boost from the Tokyo Olympic Games later this year.

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