Japan Could Face Year-Long Slump If ‘Cursed’ Olympics Canceled
A canceled or postponed Olympics would likely result in Japan’s economy shrinking for the longest stretch since financial crisis
(Bloomberg) -- A canceled or postponed Olympics would likely result in Japan’s economy shrinking for the longest stretch since the global financial crisis, according to some economists.
Ahead of the arrival of the still-flickering Olympic flame in Japan on Friday, economists contacted by Bloomberg said a scrapped or delayed Games would probably mean the economy getting smaller for a fourth-straight quarter.
“I think it’s almost certain that the economy will contract in the first and second quarters. So now the question for everyone is whether it also shrinks in the July-September quarter,” Nomura Research Institute economist Takahide Kiuchi said.
The gloomy view of Kiuchi and some other economists is the latest indication of how quickly Japan’s Olympic year has transformed from an opportunity to showcase the country’s attractions as a top tourist destination for 40 million visitors, to a year revealing the fragility of its economy and its dependence on global growth.
The world’s third-largest economy already decreased in size at an annualized pace of 7.1% in the last three months of 2019 after a sales tax hike and a super typhoon walloped consumption and disrupted production. That put the economy in a highly vulnerable state as the coronavirus started spreading around the world.
Prime Minister Shinzo Abe’s administration and the International Olympic Committee have tried to damp down growing speculation that the Games won’t be held as scheduled amid a spreading lockdown of cities across the world that is casting doubt on the viability of athletes and visitors attending the sporting spectacle.
40-Year Jinx
Finance Minister Taro Aso on Wednesday characterized the year as “cursed,” citing the examples of the war-canceled 1940 Olympics and the boycotted Moscow Olympics in 1980. “There’s been a problem every 40 years. That’s a fact,” he said in parliament.
For former Bank of Japan board member Kiuchi, the main scenario is for no Games in 2020 and a year-long sequence of quarterly contractions through September.
BNP Paribas economist Ryutaro Kono shares a similar outlook for the Olympics.
“There’s a very good chance that the Olympics will be scrapped,” Kono said.
He expects the economy to contract 2.6% this year, compared with his original view of a modest expansion of about 0.5%. A Bloomberg survey of economists, published on March 12, predicts a 0.5% contraction in 2020.
To some extent Japan’s economy has already enjoyed some of the main material benefits of Olympics-related development and investment such as the building of a brand new national stadium. A delay or canceling would deprive Japan of a hoped-for swell in sentiment, consumption and inbound tourism this year.
The staging of a successful Games would also have enhanced Japan’s soft power as a destination for visitors. In 2017, the Tokyo metropolitan government estimated the positive economic impact of the Olympics at 32 trillion yen through 2030 from 2013, when Tokyo won the bid.
“The Olympics has a largely symbolic meaning. The cancellation by itself will only shave 0.1 to 0.2 percentage points off GDP, but the situation where we can’t hold the Olympics would mean that Japan is continuing to grapple with the virus, and that other nations including the U.S. and Europe are in a deep slump,” Kono said.
Economists including Yuichi Kodama at Meiji Yasuda Life Insurance and Junichi Makino, chief economist at SMBC Nikko Securities Inc. and Shuji Tonouchi at Mitsubishi UFJ Morgan Stanley flagged the difficulty of forming an opinion that wasn’t subject to change with the rapid news flow.
“The short-term impact for Japan is going to be worse than for the global financial crisis. But the thing is that each time I change my outlook, the situation worsens further,” Kodama said.
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