Kansai’s economy set on an upward trajectory, halfway through to a full recovery
– Moving toward mass vaccination and a growing domestic demand –

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Kansai’s economy at a crossroads: double-dip recession or recovery?
Vaccination and the structural transformation of exports are key.

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Covid-19 deals historic blow to Kansai’s economy. Risks abound despite recovering exports to China.

▶ APIR’s forecast for real GRP growth in Kansai is -5.2% in FY 2020 and +3.3% in FY 2021.

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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.

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.

Overview: Stagnation concerns turning into reality due to weak domestic and external demand. Lack of robust source of growth a major risk in the future.

▶ Japan’s Q3 real GDP expanded an annualized +0.2%. Domestic demand propped up growth, while net exports supressed it.

▶ Our forecast for Kansai’s real GRP growth is +0.6% in FY 2019, +0.4% in FY 2020 and +0.7% in FY 2021. Private and public demand will make a balanced contribution to growth in FY 2019. In FY 2020, public demand will be the driver of growth. The lack of robust drivers of growth might become a concern by FY 2021.

▶ We estimated economic growth by prefecture in the past fiscal years, and we compared the economic impact of the consumption tax hike this year with the previous one in 2014. We conclude that the large increase in demand indicators in September this year was largely due to a recoil from the natural disasters last year.

Summary：　Prospects dimmed by growing uncertainties despite continued growth

▶ Japan’s real GDP expanded an annualized +1.8% QoQ in 2019Q2 , registering the third consecutive quarter of positive growth.

▶ Although Kansai’s basic economic trends remained robust in 2019Q2, prospects seem bearish due to growing uncertainties, notably the China-US trade conflict and the upcoming tax hike, which caused a noticeable deterioration in expectations-related indicators.

▶ We forecast real GRP growth of +0.6% in FY2019 and +0.5% in FY2020 in Kansai. Private consumption and government spending will prop up growth, contributing +0.8%pt and +0.4%pt in FY2019, while external demand (outside Kansai) will suppress growth by -0.5%pt. The expected FY2020 contributions are +0.3%pt for private consumption, +0.2%pt for government spending, and -0.0%pt for external demand.

▶ We analyze the impact of the trade conflict with Korea on Kansai’s economy and conclude that even if the conflict persists, its impact is likely to be limited.

Some sectors of the economy are robust but the outlook remains uncertain, dimmed by US-China trade frictions and the upcoming consumption tax hike.

• In 2019Q1 Japan’s real GDP registered the second consecutive quarter of positive growth, expanding +0.5% QoQ (+2.1% ｉｆ　annualized).
• Although some sectors of Kansai’s economy remained robust in 2019Q1, there are growing risks of recession.
• Our forecast for Kansai’s real GRP growth　in FY2019　is +0.7%. Private demand is expected to contribute +0.5%pt, government spending +0.3%pt, and external demand -0.1%pt.
• We forecast a +0.4% real GRP growth in Kansai in FY2020. The expected contributions are +0.3%pt for private demand, +0.3%pt for government spending, and -0.1%pt for external demand.