The government's decision Tuesday to expand and extend its COVID-19 state of emergency is expected to drive down private consumption in the country by between ¥1 trillion and ¥3 trillion, economists said.
This would put the brakes on the country's already slow economic recovery, making it even harder for the government to achieve its goal of restoring the economy to the level before the pandemic by the end of this year.
The government said Tuesday that it will extend the state of emergency until Sept. 12 while adding seven prefectures to the list.
Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute Inc., expects that the decision will lower private consumption by some ¥1.4 trillion, worse than the negative impact of some ¥880 billion without the expansion and extension.
The expansion and extension will also cause a drop of ¥1.2 trillion in gross domestic product, worse than a fall of ¥750 billion without the moves, according to Nagahama.
Takahide Kiuchi, executive economist at Nomura Research Institute Ltd., anticipates a negative impact of ¥3.42 trillion in private consumption.
The country's GDP grew at an annualized rate of only 1.3% in the April-June quarter on a mere 0.8% growth in private consumption, according to government data released Monday.
In addition, the raging delta variant of the coronavirus that is putting the country's medical system under strain raised concerns that economic activities will be restrained even longer despite progress in vaccinations.
"Even if the spread of vaccinations prevents an increase in the number of severely ill patients, there will be no economic recovery unless health care capacity is expanded," Nagahama said.
Kiuchi said, "Economic recovery will be difficult if Japan continues to rely solely on vaccines. Any economic measures will not work unless the government concurrently takes infection prevention measures including improving the medical preparedness."
Both Nagahama and Kiuchi believe that the government will not be able to achieve the goal of restoring the economy to its prepandemic level by the end of this year.
The goal will not be attained until at least fiscal 2022, which starts next April, Nagahama said, while Kiuchi said that will not happen until April-June 2023.
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