Japan’s Economy: Monthly Outlook (May 2021)

◆In light of the announcement of the Jan-Mar 2021 GDP 1st preliminary results, we have revised our economic outlook. We now see Japan’s real GDP at +3.1% in FY2021, with FY2022 at +3.3%. According to our main economic scenario, vaccination of healthcare professionals and the elderly against COVID-19 should be nearly complete by the end of September. Vaccination of around half of the entire nation is expected to be complete by the end of December. The pace of economic recovery is expected to pick up starting in the fall of 2021 when economic activity returns to normal. Meanwhile, the polarization between the US and China is expected to progress as strong recoveries in those economies continue.

◆Recently, highly infectious mutant strains of COVID-19 have been spreading like wildfire, and the outlook for Japan’s economy could undergo major changes depending on the pace of vaccination. If the pace of vaccination falls behind expectations, states of emergency could be declared three more times within the current fiscal year. There is a possibility that the real GDP growth rate in FY2021 could fall around 1%pt below our main scenario. Moreover, if the variant which has been spreading in India, which is said to be even more infectious than the one now spreading in Japan, also begins to spread here, the economic growth rate will likely decline significantly.