Japan’s Economy: Monthly Outlook (May 2020)

◆A little light has begun to shine on the future of Japan’s economy with the partial lifting of stay-at-home orders due to the slowing of the pace of increase in COVID-19 infections. However, recovery is likely to be gradual. Social distancing will continue to be a requirement, and precautions will continue to be taken due to the possibility of a second and even third wave of infections. We will have to assume that the level of economic activity will remain lower than it was before the COVID-19 pandemic began, and that changes in industrial structure will continue.

◆Looking at economic statistics in March, which provide useful material for grasping the extent of the decline and its fundamental characteristics, we see that household consumption recorded a decline of around 3%, while corporate activity declined by around 5%. Meanwhile, looking in more detail we find that commodities associated with going out performed poorly, while those consumed at home remained firm. Also notable was the fact that businesses located in the city center did poorly, while those in local areas were favorable. The same can be seen in high frequency data collected in April and beyond.

◆Of course, this reveals only the primary effects of the Corona Disaster. When these effects continue into the midterm, they multiply, creating a ripple effect which hits related industries, employment and income. In this report, we use an input-output table to provide a comprehensive estimate of influence on the economy, including secondary effects.

◆If the change in the level of economic activity as of March continues into the long-term, GDP in annual terms is estimated to lose 29.5 trillion yen (-5.4%), while employment is estimated to decline by -2.91 million persons (-4.2%). Looking at performance by industry, the impact is especially notable in personal services, transport & postal activities, commerce, transport equipment, business services, food & beverages, production machinery, and business oriented machinery. On the other hand, demand is expected to grow for electronic parts, electrical machinery, and medical, healthcare & welfare.