MNI POLICY: Japan Q2 GDP Seen More Severe Than Q1 On Virus

by Hiroshi Inoue

     TOKYO (MNI) - Japan's economy will be hit harder in the current three-month

period than in Q1 as activity continues be restricted by the coronavirus

outbreak and it will be some time before conditions normalise, a senior official

at the Cabinet Office said Monday.

     "It is certainly that the economic growth in the second quarter will fall

considerably, although uncertainties are very high. It will be the biggest

post-war contraction," the senior official told reporters.

     Conditions will be severe for the foreseeable future, he added and it will

take some time for Japan's economy to return to previous levels.

     "Economic activity is being restricted due to stay-at-home and containment

measures. If the coronavirus outbreak is prolonged, it would affect the labor

market situation and bankruptcies, which could affect the financial system. We

have to pay great attention to it," the official said.

     --ECONOMISTS SEE DECLINE OVER 20%

     The average economist forecast for Q2 GDP growth is annualized at -21.33%,

according to the latest monthly ESP Survey of 33 economists by the Japan Center

for Economic Research conducted from April 27 to May 11.

     Japan's economy contracted for the second straight quarter in Q1, down 0.9%

q/q, or an annualized -3.4%. The economy was weighed by weak demand in the

private sector on the back of the spread of the coronavirus, preliminary GDP

data released by the Cabinet Office Monday showed.

     The Cabinet Office official said that the Japan's economy is in a process

of downturn but he didn't confirm that Japan's economy will fall into recession,

something that will be determined by a government panel in around 12 months'

time.

     He also said that the Q1 GDP was strongly weighed down by weak private

demand, especially services such as eating and drinking, accommodations and

travel.

     "Services, especially eating and drinking services, and leisure activities,

have been strongly hit by the coronavirus since late February," the official

said.

     Firms are postponing the implementation of capital investment as corporate

profits fall and uncertainties rise, he noted.

     The eating and drinking service sector accounts for about 6% of consumer

spending in GDP and the travel for around 2% of consumer spending, he said.

     The official also said that the impact of the government economic stimulus

measures will emerge in or after the second quarter.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MAJDS$,M$A$$$,M$J$$$]