State of emergency a heavy blow to consumption, production in Japan

07, Apr. 2020

1.jpg

TOKYO, Kyodo - The coronavirus-necessitated state of emergency to be declared by Prime Minister Shinzo Abe later Tuesday across some of the most densely populated parts of Japan is expected to deal a heavy blow to consumer spending and manufacturing activities, economists warn.

Local authorities in Tokyo as well as Saitama, Kanagawa, Chiba, Osaka, Hyogo and Fukuoka prefectures are expected to request stronger restraints on nonessential outings and certain business operations.

While the central and prefectural governments do not have the legal authority to enforce restrictions on daily life or order business shutdowns, economists expect a further weakening of private consumption and a consequent slowdown in production.

Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said a decline in consumption in the impacted prefectures "may lead to a lower operating rate of manufacturers" many of which run factories in rural areas.

"The labor market may come under growing pressure," Kumano said.

Katsuyuki Hasegawa, chief economist at the Mizuho Research Institute, called on the government to form an extensive economic rescue package for regional economies, which "will be worn down" as tourist traffic dries up and product shipments to Tokyo and its surrounding areas dwindle.

According to the Tokyo metropolitan government, the capital's yearly gross domestic product is around 100 trillion yen ($917 billion), accounting for about 20 percent of the nation's total.

Coupled with the shutdown of the tourism and restaurant industries in Tokyo, Barclay Securities Japan predicts that production cutbacks will result in a deeper nationwide economic contraction in the April-June quarter than the currently estimated decline of 2.7 percent.

Shunsuke Kobayashi, senior economist at the Daiwa Institute of Research, said declaring the state of emergency is a necessary measure to slow the spread of the coronavirus and avert a healthcare collapse, but it will deliver a "devastating blow to the economy." (Kyodo)