Economists are slashing forecasts for the Japanese economy as exports are hit from overseas lockdowns and rising domestic virus cases force the Tokyo governor to request residents to stay home.

The economy is heading for its weakest period since the financial crisis, according to the latest economist projections. Goldman Sachs Group Inc on Wednesday cut its 2020 expectations for gross domestic product to a 3.1% contraction from a 2.1% drop. Barclays Plc said Thursday its latest projection is for the economy to shrink 2.6%.

The downgrade is “due to the triple whammy of fiscal contraction linked to the consumption tax hike, the COVID-19 outbreak and the postponement of the Tokyo Olympics,” Barclays economists Tetsufumi Yamakawa and Kazuma Maeda wrote in the report.

Goldman’s Naohiko Baba and Yuriko Tanaka see Japan’s exports taking a significant hit as the U.S. and Europe’s strict measures to slow the spread of coronavirus halt economic activity. They see the impact of the delayed Olympic Games as “quite limited” compared with the shock from the pandemic.

Risks of further downgrades remain. Tokyo Governor Yuriko Koike asked her residents on Wednesday to stay home this weekend. She didn’t rule out the chance of ordering a complete lockdown earlier this week.

Olympic Delay Puts Pressure on Japan to Pick Up Spending Pace

The bleak economic outlook has increased pressure on the government to step in. Prime Minister Shinzo Abe is expected to unveil a “bold” fiscal package next month as ideas of cash handouts and delaying corporate tax payments have been floated.

Tokyo accounts for around 19% of the nation’s economy, so lockdowns could have a profound impact on overall activity. Capital Economics estimated that it would “reduce national output by 5% for as long as it lasted.”



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