Risk of COVID-19 resurgence likely to hamper Japan's economic recovery

 Though Japan's economic recovery was sluggish in the first half of this year, COVID-19 resurgence remains the biggest obstacle in the second half.

In its report for global economic prospects released in June, the World Bank raised its forecast for global economic growth this year to 5.6 percent, compared with a mere 2.9 percent for Japan's economy growth.

Japan's Cabinet Office recently released a monthly economic report that Japan's economic recovery is still grim under the impact of the pandemic. Although the recovery momentum is continuing, some sectors remained weak.

Looking ahead, Japan's economy is expected to continue to recover as overseas demand continues to improve, on the premise of stronger prevention measures and faster rollout of vaccination, the report said.

Since June 21 when a state of emergency was lifted in Tokyo and Osaka prefectures, daily count of COVID-19 cases in many places in Japan has started to climb. More than 50,000 Olympics-related people including athletes are expected to visit Japan during this month's Tokyo Olympics despite a ban on overseas visitors, according to the Tokyo Olympic organizing committee.

A resurgence of COVID-19 cases and another possible state of emergency have become the biggest worry.

In the first quarter of this year, real gross domestic product fell 1.0 percent from the previous quarter because of the state of emergency in three economic circles. Internal and external demand dragged down the economy by 0.8 percentage points and 0.2 percentage points, respectively.

Foreign demand has been an important factor underpinning Japan's economic recovery, helped by strong recovery in major overseas markets. Japan's exports rose 49.6 percent in May from a year earlier, a third straight month increase on a year-on-year basis. Exports to China rose for the 11th consecutive month from a year earlier, while those to the United States and the European Union rose for the third consecutive month.

But the recovery in domestic demand remained slow and fragile, with private consumption, which accounts for more than half of the country's economy, still sluggish. Experts expected consumption restrictions related to prevention of the COVID-19 pandemic to remain in place at least through the end of the Olympic Games.

Yasutoshi Nishimura, Japan's economy minister, said the shortage of medical resources would be closely monitored during the Games and a state of emergency would be reissued if needed.

Meanwhile, COVID-19 vaccination in Japan has progressed slowly. According to statistics, as of July 1, the vaccination rate for the first and second doses in Japan was 23.79 percent and 12.58 percent, respectively. Under such circumstances, many Japanese are expected to avoid risky consumption activities such as traveling and dining, even if the state of emergency is lifted.

In the second quarter, despite strong export growth and an increase in equipment investment, personal consumption remained sluggish, with real GDP expected to grow only 0.7 percent quarter on quarter, Nikkei reported.

Personal consumption is expected to recover quickly in the third quarter, but risks to consumption are still on the downside as the government may again declare a state of emergency, said Taro Saito, head of Economic Research Department of NLI Research Institute.

It is very difficult for Japan to completely end the pandemic, and there is still the possibility of a sharp rebound, he said.

It is expected that Japan's real GDP may recover to the level of the fourth quarter of 2019 in the first quarter of 2022, the expert said.