Japan’s fresh state of emergency over the coronavirus pandemic threatens to nip hopes for an economic recovery in the bud by further weakening consumption, economists have warned.
Prime Minister Yoshihide Suga on Friday declared a third state of emergency, effective from April 25 through May 11 in Tokyo as well as the prefectures of Osaka, Kyoto and Hyogo, in an effort to curb a surge in COVID-19 during the upcoming Golden Week holidays, usually one of the busiest times of the year for travel.
Under the declaration, local authorities will impose tougher restrictions, including the closure of establishments that serve alcohol, department stores and shopping malls.
Due to the impact of the emergency measures, “the economy will possibly see negative growth in the current quarter,” said Keiji Kanda, a senior economist at the Daiwa Institute of Research.
Many analysts had expected Japan’s economy to rebound in the April-June period from a downturn in the previous quarter, when the second state of emergency was in place for parts of the country including Tokyo, Osaka and other urban areas. Under that emergency, the food services industry, including restaurants and bars that had been asked to close early, had been hit hard.
Gross domestic product data for January to March is scheduled to be released next month, but economists are already pessimistic enough to forecast a contraction in the world’s third-largest economy.
The economy is projected to have shrunk an annualized real 6.09% in the three months from the previous quarter, the first contraction in three quarters, according to the average forecast of 36 economists released earlier this month by the Japan Center for Economic Research.
In the survey, they also forecast a rebound in the economy the following quarter. But such optimism has been fading on the unexpectedly fast spread of the virus, particularly its mutated, highly contagious variant strains.
Entailing requests for not only alcohol-serving establishments but also major commercial facilities such as department stores, shopping malls and amusement parks to close temporarily, the more comprehensive third emergency is estimated to reduce the country’s GDP by ¥600 billion ($5.6 billion) per month, Kanda said.
Suga told a news conference that “if we succeed in preventing the virus from spreading further, the impact (on the economy) will not be so big,” while underscoring that the intensive measures will be taken only when many businesses are already closed during Golden Week.
But few analysts are taking this claim at face value.
“I don’t think the emergency will end in a few weeks as the government plans. It might be extended to two months or so, and the target areas could be also expanded,” said Kanda, adding that economic damage would swell if the latest emergency is expanded nationwide.
In fact, the first virus emergency in spring last year was expanded to all of 47 of the country’s prefectures for about a month, after it was initially issued for Tokyo and six prefectures in early April.
The first virus emergency brought about a record annualized real 29.3% GDP contraction in the April-June period last year. Since then, the economy has been recovering with double-digit percentage growth for two straight quarters.
“Economic recovery will be forced to slow down until vaccinations prevail,” Kanda also noted.
Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc., forecasts the economy will shrink an annualized real 4.0% in the current quarter.
The third state of emergency is expected to trim consumption by ¥1.3 trillion from levels in the January-March period, he said.
While the accommodation and food services industries have already suffered significant dips in sales as a result of the pandemic and subsequent crisis measures, damage from the fresh emergency could be more evident in other sectors such as retailers and entertainment service providers, Maruyama said.
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