The spread of infections with the new coronavirus is dealing a massive blow to the Japanese economy. The government should take effective measures by accurately assessing the economic trends that are becoming increasingly severe.
The government downgraded its assessment of the economy from "recovering at a moderate pace" to being "in a severe situation" in its Monthly Economic Report for March. Economic activity has been stagnant due to a sharp decrease in the number of foreign visitors to Japan, as well as self-restraint in going out or holding events. The government acted appropriately in changing the assessment in the report.
By item, the assessment on private consumption was reduced for the first time in about three years to "showing weakness." Business investment and corporate profits were also revised downward. This suggests that downward pressure is spreading to a wide range of sectors.
The diffusion index, which is calculated mechanically from major economic indicators, has shown deterioration since August 2019. The nation's real gross domestic product in the period from October to December 2019 also shrank by an annualized rate of 7.1% to mark significant negative growth reflecting sluggish consumption.
The economy may have been in a slowdown even before the impact of the COVID-19 infection began to spread.
Nevertheless, the government had been using the expression "recovering" in its economic assessment for nearly seven years until last month.
Optimism leads to delays in policy responses. It is feared that the economy will deteriorate rapidly in the days ahead. The government should be increasingly alarmed by the situation.
The problem is that restrictions on going out and traveling overseas have now spread around the world, causing consumption of goods and services to plummet. A recurrence of the global evaporation of demand that occurred due to the Lehman shock of 2008 is becoming more likely.
The International Monetary Fund has said it expects the world economy to post negative growth in 2020 and enter a recession equaling or even worse than the situation following the Lehman shock.
As seen in the move by Toyota Motor Corp., which has stopped operation of some of its domestic plants, production has started to decrease also in Japan due to sluggish global demand. There is also concern that the Japanese economy may fall into a vicious spiral of deteriorating corporate performance, pushing down employment and income and further dampening consumption.
It is hoped that the government will come up with bold measures to curb the declining economy.
What is particularly important is to protect employment, which is the foundation of the people's livelihood. Financial institutions, both in public and private sectors, must work together to support the financing of small and midsize companies to prevent a sharp rise in unemployment due to bankruptcy.
Employment adjustment subsidies, which are provided for firms that let their employees take leave instead of terminating their contracts, should be expanded. The conditions for applying the system to non-regular workers should also be eased.
Non-regular employees account for about 40% of all workers in the nation. The practice of laying off temp workers once caused social unrest, and the lessons of the past should not be forgotten.
-- The original Japanese article appeared in The Yomiuri Shimbun on March 27, 2020.
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