Economy faces 'serious situation' due to COVID-19, says government in monthly report

The government downgraded its key assessment of the Japanese economy on Thursday, saying it was in a "serious situation" as the COVID-19 pandemic continues to wreak havoc in the country and the world.

In its March monthly report, the Cabinet Office did not use the term "recovery" to describe the domestic economic situation for the first time in more than six years.

"The Japanese economy is in a severe situation, extremely depressed by the new coronavirus," he said, while reviewing his views on seven of the top 11 categories, including private consumption and business investment.

"We are aware that the moderate recovery trend has clearly changed and (the economy) has entered a phase of decline," Yasutoshi Nishimura, minister in charge of economic and fiscal policy, said at a news conference after the cabinet approved the report.

Previously, since July 2013, the report adopted expressions such as the Japanese economy "on the road to recovery" or "on the road to recovery". In February, the government said the economy was "recovering at a moderate pace, while the increase in weakness mainly among manufacturers continues, as exports remain in a weak tone".

The government last revised its assessment in December.

"Initially, we saw especially the downward pressure caused by the virus outbreak in consumer spending, but since February it has also appeared on the supply side," a government official told reporters.

"We cannot know whether the impact of the virus outbreak will be only temporary, so we can hardly predict when the situation will change," he added.

The official noted that the pace and impact of the economic deterioration are almost on a par with those seen after the great earthquake and tsunami of 2011 that hit Tohoku and the global financial crisis of 2008.

In the future, the report predicted that the serious situation would continue and warned of "more negative risks" for the domestic and global economy, as well as for "the effects of fluctuations" on financial markets worldwide.

In the report, the government made a more somber assessment of the situation around private consumption for the first time in about three years, when the virus pandemic, first identified at the end of last year in the city of Wuhan, in central China , forced many events to be canceled, with people increasingly unlikely to leave.

Supply chains have been disrupted, mainly due to the suspension of economic activities in China and elsewhere. This led the government to downgrade corporate profits and business sentiment, saying they were "in a weak tone" and "deteriorating", respectively.

Assessments in other categories - such as public investment, imports and employment status - were also bleak, while those for exports, industrial production and the expected number of bankruptcies remained unchanged, the report said.

Japan's economy shrank by 7,1% from October to December, with the sales tax increase in October hampering consumer spending.

The virus could cause the country's economy to contract further from January to March and send it into a technical recession, defined as at least two consecutive quarters of declining gross domestic product.

Source: Japan Times // Image credits: REUTERS / Issei Kato

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