The latest GDP figures are in and they are shockingly bad.
On August 17, Japan’s Cabinet Office released the latest economic data for the April-June period. It showed that gross domestic product (GDP) had plummeted at an annualized rate of 27.8 percent after price and seasonal adjustments. The growth rate was the worst recorded in the postwar period.
The downturn was directly attributable to the restrictions imposed on economic and social behavior following the declaration of emergency to deal with the novel coronavirus (COVID-19) pandemic during April and May.
The drop of 8.2 percent for personal consumption, one of the main pillars of domestic demand, was a clear reflection of the dire straits Japan finds itself in.
Current economic conditions are also disturbing. After bottoming out in the April-May period, the economy bounced back a bit. However, the number of individuals contracting the virus again started rising before the economy could get firmly back on track.
Once again, self-quarantining measures are being strengthened, even in terms of the customary en masse returns to hometowns during the Obon summer holidays.
Business sentiment also remains in a deep freeze as signs of a resolution to the pandemic situation appears increasingly elusive. If these conditions continue, small businesses and individual entrepreneurs, which seemed to be showing marginal improvement, will no longer be able to manage.
The Next Steps are Critical
Now more than ever the national government needs to do everything possible to support the economy. It should verify which existing policies are adequate while preparing with a sense of crisis for a worsening situation if a second wave of COVID-19 becomes more acute.
During the April-June quarter, in addition to consumption, exports and corporate capital investment also declined. The government estimates that the real growth rate for the Japanese economy in FY2020 on an adjusted basis will be minus 4.5 percent.
Moreover, there is concern that it could sag to 5.0 percent if there is a massive second wave of COVID-19 overseas this fall.
We would point out that the government’s second supplementary budget was compiled as a countermeasure when the novel coronavirus threat was at its highest during the April-May period. After the emergency declaration was completely lifted in the latter part of May, the central government has mostly sought to balance efforts to prevent the spread of the virus with renewed economic activity.
However, we cannot wait for the fall and the return of the flu season.
With COVID-19 again on the march at home and overseas, we urgently need to update our countermeasures. If nothing is done to alleviate growing concern in the business community and a worsening labor market, things could deteriorate to the degree that the bottom drops out of the Japanese economy.
The Abe administration has decided to earmark more than one trillion Japanese yen (about $9.5 billion USD) in reserves for additional spending, including sustainability benefits for business operators. Of course, assistance should be flexibly expanded as the situation warrants.
The government has been criticized for not getting relief to those who need it in a timely fashion. At the same time, while sectors like tourism, transportation and the restaurant industry have been suffering greatly, other companies are doing well by meeting demand for goods and services from people stuck at home.
Now we must ensure that timely and adequate relief reaches those businesses that are in most need of assistance.
(Read the original Sankei Shimbun editorial here, in Japanese.)
Author: Editorial Board, The Sankei Shimbun