Japan Sees Worst GDP Drop Since End of World War II

As Japan continues to battle rising coronavirus cases amid a national state of emergency, its economy has taken a hit, according to new government data.

Japan's Cabinet Office reported that the country's economy shrunk to an annual rate of 5.1 percent in January-March. The preliminary adjusted gross domestic products (GDP) showed household consumption dropped at an annualized rate of 5.6 percent and government spending declined 6.9 percent.

According to the Associated Press, the GDP drop over the last fiscal year is the worst Japan has seen since the end of World War II.

Robert Carnell, regional head of research Asia-Pacific at ING, told AP that the latest results show the negative impact of the government restrictions put in place during the pandemic.

"The prospects for growth in the rest of the year are looking much weaker," he said. "With Japan still lagging behind even many developing Asian economies when it comes to vaccination rates, we believe a more rapid second-half improvement is unlikely."

For more reporting from the Associated Press, see below.

A notice to prevent the spread of the COVID-19 coronavirus is displayed at an entrance of a department store in Tokyo on May 18, 2021. Japan's economy contracted 1.3 percent in the three months ending in March after the government reimposed coronavirus restrictions in major cities as infections surged, data showed. KAZUHIRO NOGI/AFP via Getty Images

Gross domestic product is the sum value of a nation's products and services. The annualized rate shows what the rise or drop would have been if that same pace had continued for a year.

Much of Japan has been under a state of emergency, centered around early closures of restaurants and bars, to curb the spread of the virus at places where crowds gather.

Still, COVID-19 illnesses and deaths have been rising amid one of the slowest vaccine rollouts in the developed world. About 4% of the population has gotten at least one shot so far.

Analysts say a more thorough vaccination effort is the only realistic way economic activity can resume close to normal and growth can recover to pre-pandemic levels.

The world's third-largest economy managed to eke out growth in the last two quarters, slowly recovering from earlier pandemic damage. It grew 2.8% in October-December, compared to the previous quarter, and expanded 5.3% July-September on-quarter. It had shrunk the quarter before that, at a minus 8.1% in April-June. These are all not annual rates but compared to the previous quarter.

For the latest quarter, the contraction on quarter stood at minus 1.3%.

For the 2020 calendar year, Japan's economy sank 4.7%, the first year of contraction in 11 years, the Cabinet Office said. Economic growth was flat in 2019.

Although trade has been recovering as overseas nations get vaccinated, much of the Japanese economy depends on domestic demand.

Japan never had a lockdown for COVID-19, trying to keep business activity going while encouraging working from home and social distancing. Japan has had more than 11,500 deaths from COVID-19.

Cases are surging especially in urban areas, such as Osaka and Tokyo, and hospital beds are running out in some spots. The public has grown increasingly opposed to holding the Tokyo Olympics, postponed from last year and set to begin in July, Japanese media surveys and an online protest petition show.

Japan GDP Drop
A rickshaw puller carries tourists near Sensoji Buddhist temple at Tokyo's Asakusa district in Tokyo on March 31, 2021. The Japanese economy contracted at an annual rate of 5.1% from January through March, slammed by a plunge in spending over the coronavirus pandemic, according to government data released May 18, 2021. Eugene Hoshiko/AP Photo