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Japan’s Economy: Monthly Outlook (Mar 2021)

Post-state-of-emergency economic outlook / additional economic measures expected in the future

Keiji Kanda

Akane Yamaguchi

Munehisa Tamura

Megumi Wada


◆Looking at consumer turn-out, the most recent state of emergency appears to have been effective against the spread of COVID-19 to a certain degree. The effect on real GDP was around -2.2 tril yen, and is estimated to have fallen significantly below the decline of -3.8 tril yen experienced during the previous state of emergency issued April-May 2020. The outlook for the real GDP growth rate for the Jan-Mar period of 2021 is -5.1% q/q annualized. Exports, which fell dramatically during the previous state of emergency, are expected to provide underlying support this time around. Meanwhile, the outlook for the GDP growth rate during the Apr-Jun period of 2021 is +4.8% due to the restart of economic activity and improvements in the external environment.

◆The government is implementing “comprehensive measures” to prevent further spread of infections after the state of emergency is lifted. However, recently there has been an increasing number of regions in which the number of new infections has stopped declining, or in which the number of new infections has begun increasing again. If consumer turn-out recovers rapidly after the lifting of the state of emergency, and the highly infectious mutant strain begins to spread between now and the end of April, explosions in infections could occur three times during FY2021. Moreover, if the pace of vaccination is slow, the outlook for the FY2021 real GDP growth rate could deteriorate by -0.7% in comparison to our main scenario which predicts growth of +3.7% in comparison with the previous year.

◆Once we have moved into FY2021, the debate regarding the first preliminary budget will begin. The GDP gap, which is often used as a reference in considering the scale of fiscal expenditure, is expected to be approximately -28 tril yen in the Jan-Mar period of 2021. There is a shortage of demand which is caused by the decline in personal consumption, and household savings are rapidly accumulating. Hence the situation does not call for large-scale payment of benefits. Most industries, including the manufacturing industry, have returned to a normal level of economic activity, while the tourism, eating & drinking, and entertainment industries remain in a difficult situation, and hence should be given priority when it comes to economic support. Meanwhile, vaccination in Japan has not only started later than in other countries, but has been making slow progress. It would therefore be a good idea to devote some fiscal expenditure to providing backup in order to quicken the pace of vaccination.

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