You are here: Home » International » News » Economy
Business Standard

Japan's state of emergency seen triggering Q1 economic contraction

By Leika Kihara

Topics
Japan

Reuters  |  TOKYO 

An employee working at a retail store in Japan. Photo: Reuters
An employee working at a retail store in Japan. Photo: Reuters

By Leika Kihara

TOKYO (Reuters) - Japan's likely decision to declare a state of emergency in the Tokyo area will most probably trigger a contraction in January-March, analysts say, adding to the headache for policymakers struggling to cushion the blow to the from the pandemic.

The world's third-largest rebounded sharply in the third quarter last year from a record April-June slump caused by the pandemic, heightening expectations a moderate recovery.

But such hopes have been dashed by a resurgence in COVID-19 infections that have forced the government to consider imposing a state of emergency that could last about a month.

Media reported on Monday that preparations were being made for a state of emergency that would take effect by Friday.

While the restrictions will be far less sweeping than those during last year's nationwide state of emergency, analysts expect them to inflict severe damage on consumption.

"There's no doubt Japan's will suffer a contraction this quarter," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

"The question will be whether it's a double-digit or a single-digit drop, which depends on how long the restrictions last and whether stronger curbs could be added."

The current plan, unveiled by government officials this week, focuses on requests for restaurants to close early and for residents to refrain from non-essential outings in the evening.

BNP Paribas chief economist Ryutaro Kono said he plans to slash his January-March forecast to an annualised contraction of around 2% from the current projection of a 0.2% increase.

Daiwa Institute of Research also expects the economy to shrink in January-March, even though it sees the hit to real gross domestic product (GDP) at less than 1 trillion yen ($9.7 billion) per month - one-third that from last year's curbs.

"If the government is forced to impose longer and broader restrictions than the current plan, the risk of a double-dip recession rises sharply," Daiwa economists wrote in a report.

In a Reuters poll last month, analysts had expected the economy to expand an annualised 3.9% in October-December last year followed by a 2.1% gain in January-March.

($1 = 102.8400 yen)

 

(Reporting by Leika Kihara; Editing by Raju Gopalakrishnan)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, January 05 2021. 18:14 IST
RECOMMENDED FOR YOU
.