Covid-19 to further debilitate Kansai’s economy: a slump in private and external demand.

▶ Our forecast for Kansai’s real GRP growth is -5.1% in FY 2020 and +2.6% in FY 2021.

▶ We estimate that the economic loss caused by the state of emergency in Kansai will be JPY 154.3 billion in terms of private consumption, JPY 825.2 billion in terms of private capital investment, and JPY 3,211.8 billion in terms of exports, adding up to a total GRP loss of JPY 3.75 trillion. 158 thousand employees are expected to lose their jobs.

Forecasts updates
▶ Our latest expenditure-side forecast for Japan’s real GDP growth in 2020 Q1is an annualized -2.7%. Our production-side forecast is an annualized +0.3%. The average of the two forecasts is an annualized -1.2%.
▶ Our forecasts for the private final consumption expenditure deflator and the domestic demand deflator in 2020 Q1 are both +0.1% QoQ. As the terms of trade are deteriorating, we forecast an overall GDP deflator of 0.0% QoQ.

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Outlook: Kansai’s economy is likely to remain on a downward trajectory

▶  Production: Production declined in February.
▶  International trade: In March, Kansai’s trade surplus was smaller than the previous month.
▶  Business confidence: The Economy Watcher DI in March reached an all-time low.
▶  Wages: Both nominal and real wages kept declining in January.
▶  Labor market: In February, the job offers-to-applicants ratio kept deteriorating, and the unemployment rate kept increasing.
▶  Private Consumption: In February, department store sales plummeted while supermarket sales rose due to stockpiling in the face of the coronavirus pandemic.
▶  Housing: The number of new housing starts kept decreasing in February.
▶  Construction: Construction investments in February kept expanding, albeit at a decelerating pace. The contract amount for public works projects in March increased.
▶   Inbound tourism: Due to the impact of the coronavirus, the number of international arrivals at Kansai International Airport in March plunged -95.1% year-on-year.
▶  Chinese economy: China saw its Q1 GDP shrink for the first time since quarterly GDP statistics started in 1992.

Data updates

▶ Although production increased for the third consecutive month in February, its recovery from the October-November slump has been sluggish.
▶ Spending on goods (40% of total private final consumption expenditure) increased in February. However, statistics on spending on services, which have more weight and might have been affected substantially by Covid-19, have not been released yet, making it hard to draw conclusions on private consumption trends.
▶ Private housing, private capital investment and changes in private inventories were all bearish in 2020 Q1.
▶ February imports were hit particularly hard by Covid-19. That caused an abrupt expansion in net exports, which propped up GDP growth. However, as the global economy entered a synchronized slowdown in March, we expect that exports will decline, which will worsen the trade balance.

2020 Q1 Forecasts
▶ Our forecast for 2020 Q1 real GDP growth is an annualized -0.2% QoQ.
▶ However, real total demand growth (i.e. domestic demand plus imports) is an annualized -4.8%.
▶ We forecast an overall GDP deflator of -0.1% QoQ in 2020 Q1.

Outlook: Kansai’s economy is likely to remain on a downward trajectory

▶  Production: Although production increased in January, it has not recovered from the October-November slump.
▶  International trade: In February, Kansai’s trade deficit turned into a surplus due to the slump in imports from coronavirus-hit China.
▶  Business confidence: The Economy Watcher DI in February reached its lowest level since April 2011 (after the Great East Japan Earthquake).
▶  Wages: Both nominal and real wages kept declining in December.
▶  Labor market: In January, the job offers-to-applicants ratio deteriorated, and the unemployment rate increased.
▶  Private Consumption: Department store and supermarket sales in January kept declining. Duty-free sales plunged -71.9% in February.
▶  Housing: The number of new housing starts decreased in January.
▶  Construction: Construction investments kept expanding in January, but the growth is decelerating. The contract amount for public works projects in February decreased.
▶   Inbound tourism: Due to the impact of the coronavirus, the number of international arrivals at Kansai International Airport in February slumped -66.0% year-on-year.
▶  Chinese economy: Coronavirus-hit China saw its manufacturing PMI drop to a historic low of 35.7 in February, a level lower than the one registered during the Global Financial Crisis.

Slump in private demand to precipitate recession in FY2019-2020

-Forecast update reflecting the latest GDP estimates and the impact of the coronavirus-

▶Our forecast for Kansai’s real GRP growth is -0.2% in FY 2019, -0.5% in FY 2020 and +1.1% in FY 2021. FY2019 growth was revised down by -0.3%pt, and FY2020 growth by -0.7%pt, reflecting the impact of social distancing, self-quarantines and reduced economic activities due to the coronavirus outbreak.

Data updates
▶　Most major economic indicators deteriorated in January, including residential construction, capital goods shipments, private capital investment, exports, imports, and large retailers’ sales. Inventories piled up as industrial production increased slightly. The recovery in production, however, has been slow since the consumption tax hike last October.

2020 Q1 Forecasts
▶　Our forecast for 2020 Q1 real GDP growth is an annualized -0.3% QoQ.
▶　We forecast an overall GDP deflator of -0.0% QoQ in 2020 Q1.