Japan’s economy could see record turnaround — if pandemic is kept under control

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Japan’s economy is expected to make its sharpest rebound in decades this year, with consumption set to pick up toward the end of 2021 as the impact of the COVID-19 pandemic on the broader economy eases.

The world’s third largest economy is projected to grow 3.42% in the next fiscal year, which will run to March 2022, after shrinking 5.37% this fiscal year, according to an average of forecasts by 35 economists polled by the Japan Center for Economic Research.

If the estimate is borne out, it would see a turnaround from the economy’s worst contraction to its highest growth since fiscal 1995, when comparative date became available.

Such a scenario, however, could be delivered a serious blow after Prime Minister Yoshihide Suga said Monday that the government was considering a fresh state of emergency declaration in Tokyo and three neighboring prefectures as coronavirus cases continue to climb.

The government aims to bring the economy back to pre-pandemic levels with help from stimulus measures next fiscal year. But economists have cautioned that such a view seems too optimistic, and that a recent resurgence of infections with new virus variants emerging could even stall the recovery in early 2021.

Consumer spending is poised to gather momentum as COVID-19 vaccines become available for widespread use by summer, and would also get a one-off boost if the postponed Tokyo Olympics and Paralympics go ahead from July as currently planned.

“Japan’s economy is going to benefit from the effect of nationwide vaccination,” Atsushi Takeda, chief economist of the Itochu Research Institute, said.

Suga has promised to procure enough doses of vaccine for the nation’s needs by the first half of 2021, and the government estimates 4.0% growth next fiscal year. The prime minister said Monday that his government was aiming to begin the country’s vaccination program by the end of February.

The domestic economy shrank an annualized real 29.2% in the April to June period from the previous quarter, according to the government, which may be the largest contraction on record since 1955.

Roughly a monthlong state of emergency declared last April brought many businesses to a near standstill, with spending on trips, eating out and shopping falling sharply amid stay-at-home requests.

The economy rebounded in the following quarter with annualized 22.9% growth as economic activity restarted gradually. Real gross domestic product for the July to September period, totaling ¥527.14 trillion on an annualized basis, outstripped the ¥500.63 trillion logged the previous quarter, though it was still below the ¥545.72 trillion seen in January to March before the virus had a full impact on the economy.

With the nation having maintained recovery momentum into the final quarter of 2020, the Tokyo Games will likely offer an opportunity to propel spending this year, economists have said.

Last month, the Organization for Economic Cooperation and Development raised its forecast for…

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