Arab News Japan

TOKYO: On course for the deepest recession in the post-war era, Japan’s GDP is expected to fall between 6% and 7.25% this year, the Organisation for Economic Co-operation and Development (OECD) said in a new report.

Measures aimed at stemming the spread of COVID-19 are to blame for the gloomy outlook, as business activity and international demand have plummeted. Although the economy has slowly started to pick up since May, recovery is expected to remain moderate and may face additional setbacks from a second wave of the virus, the report concluded.

While Japan’s anti-virus policies have been more lenient than in many countries, a state of emergency during April and May and continued international travel restrictions have hit the economy hard — especially affecting the tourism, accommodation, food service and personal services sectors.

In addition, business sentiment in the manufacturing sector is at its lowest point in years. Also, a decreasing openings-to-applicants ratio seems to indicate that there are fewer new jobs available.

In the face of the dire situation, the Japanese government has undertaken a number of measures to try to stabilize the economy, including two supplementary budgets this year with additional government spending in the them amounting to 4.7% and 5.8% of the country’s GDP, respectively. Measures included in the supplementary budgets have included cash handouts to households and rent subsidies for heavily affected businesses.

Other stabilizing measures have included tax deferrals and the Bank of Japan buying assets and offering 0% interest loans.

In total, OECD estimated that Japan’s on-and off-budget measures come to about 42% of its GDP. Despite the hefty investment, however, it predicted that long-term damage may result from lower investment and labor force participation, especially if a second wave hits later in the year.

But it noted that the outlook could be better than expected if severe labor shortages lead to greater investment and labor force participation.

OECD recommended that Japan continue its step-by-step reopening, prioritizing companies with lower risks of spreading infection, and the promotion of flexible working styles.

The organization further emphasized the appropriate implementation of the supplementary budget and suggested that temporary measures may have to be extended for the most-hurt businesses.