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Alvin Liew, Senior Economist at UOB Group, assessed the latest GDP figures in the Japanese economy.

Key Quotes

“Japan’s 2Q 2020 GDP recorded an unprecedented contraction of -7.8% q/q (-27.8% annualized rate). Almost all major GDP segments (including private consumption, business spending, public consumption, net exports and private inventories) declined, except public investment.”

“Even as we factor a rebound in the second half of this year, earlier optimism of a robust recovery has now given way to a weaker one given the weakness in manufacturing and services PMIs and lackluster household spending recovery. Beyond the COVID-19, we see Japan facing significant challenges due to the worsening US-China relations, the tighter fiscal space for the government and greater reliance on the central bank to support the domestic economy.”

“Based on the significant downgrade in the 2Q GDP and a weaker 2H rebound projection, we now expect Japan full-year GDP to contract by a deeper 6.0% in 2020 (from -5.5% previously) compared to +0.7% in 2019. This already factors in a 2H rebound in the magnitude of +9.5% q/q SAAR in 3Q and 10.4% in 4Q, which translates into -8.0% y/y in 3Q and -3.9% y/y in 4Q. However, there are material downside risks to our 2H rebound as we still see significant uncertainty due to COVID-19 developments. On the other hand, the primary upside risk to the forecasts will be the successful and quick deployment of a vaccine against COVID19.”