Japan’s Economy in Emergency Set to Shrink 25%, Goldman Says

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(Bloomberg) -- Even with a record stimulus package, Japan’s economy is heading toward a record contraction of 25% this quarter following Prime Minister Shinzo Abe’s declaration of a state of emergency in Tokyo, Osaka and some other parts of the country, according to Goldman Sachs.

Japan’s Economy in Emergency Set to Shrink 25%, Goldman Says

The call to stay at home, while not legally binding, will also push down consumer spending by 25% on an annualized quarter-on-quarter basis and further reduce business spending, Goldman Sachs economists Naohiko Baba and Yuriko Tanaka wrote in a note Wednesday. They also see exports plunging 60% in the quarter.

The forecast is the latest dismal assessment of the hit Japan’s economy will take as activity is scaled back by the virus pandemic, with the emergency declaration covering almost half of the nation’s output.

Japan’s Economy in Emergency Set to Shrink 25%, Goldman Says

The measures in Japan are of a different dimension from the lockdowns imposed in Europe and the U.S. given that most measures don’t carry legal force and with public transport, financial services and food stores continuing, the economists said.

“However, we expect the explicit declaration of a state of emergency to meaningfully change the behavior of individuals, business owners and event organizers. We expect a change in how people act, including stepped-up business suspensions and people refraining significantly more from activities outside the home,” they wrote.

While Abe’s stimulus package of 108 trillion yen was far larger than a set of measures introduced 11 years ago during the global financial crisis, they said the direct boost to the economy would be closer to 14 trillion yen.

©2020 Bloomberg L.P.

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