Forecast: Negative GDP growth seen for 2 straight quarters as emergency extended in Japan

The Yomiuri Shimbun
Customers shop on May 1 at a department store in Chuo Ward, Tokyo, where only floors selling daily necessities are open for business.

Economists are projecting that Japan’s real gross domestic product (GDP) growth for April-June could show negative results for the second consecutive quarter, following the government’s extension of the state of emergency to cope with the coronavirus crisis.

Takahide Kiuchi, an executive economist at Nomura Research Institute, Ltd., estimates that the state of emergency, which has been expanded to six prefectures, will reduce opportunities for shopping, dining out and other activities, resulting in a loss of ¥1.062 trillion in consumer spending for May 12-31. The current state of emergency, which started on April 25, was initially planned to end on Tuesday.

Kiuchi projects that private consumption for nonurgent or nonessential purposes will drop to about the same level seen during the first state of emergency in April and May last year. When combined with a projected loss from the third state of emergency issued for Tokyo and three other prefectures from April 25 to May 11, the total loss from the ongoing emergency is estimated at ¥1.76 trillion, according to Kiuchi.

Toshihiro Nagahama, a chief economist at Dai-ichi Life Research Institute Inc., estimates that the third state of emergency will have a downward effect on consumer spending of about ¥937.7 billion, as the government reviewed its closure requests for commercial facilities.

Kiuchi’s loss estimates for the current state of emergency are smaller compared with the previous two, with ¥6.4 trillion projected for the first emergency and ¥6.3 trillion for the second, which was in place from January to March this year.

Some experts have pointed out that the nation’s real GDP growth for the April-June quarter could fall into negative territory due to a decline in consumer spending under the state of emergency.

Nagahama concluded that the current state of emergency could push down the real GDP growth rate for the April-June period by slightly less than 3% on an annualized quarter-on-quarter basis, meaning that Japan could record negative growth for two consecutive quarters.

Kiuchi also said, “The growth is thought to be around zero percent [at this moment], but if the state of emergency is extended or expanded further, the possibility of negative growth will increase.”