The Impact of COVID-19 on Japan’s Economic Outlook

For about three decades, the Japanese economy suffered a prolonged phase of economic stagnation but may have started, in late 2019, to emerge from this state with the implementation of Abenomics in late 2012 or early 2013. Abenomics consisted of “three arrows”, namely aggressive monetary policy, flexible fiscal policy, and growth strategy based on structural reforms. However, due to COVID-19, Japan's GDP decreased by 4.5% in 2020 from 0.7% in 2019. The economy increased by 1.7% in 2021, had stagnated at 1.4% in 2022, and is expected to slow down to 1.1% in 2023, and to 0.9% in 2024 (IMF Jan 2023 forecasts). IMF’s January 2023 report is based on inflation peaking with low growth due to rising interest rates. In January 2021, a year into the COVID-19 period, IMF was hopeful, predicting a V-shaped growth pattern of 3.1% for 2021 and 2.4% for 2022 due to policy stimulus and the availability of vaccines. However, this did not materialize due to various geopolitical and economic shocks. The economic costs of the COVID-19 pandemic relative to its absence are estimated to be at least US$1.45 trillion (¥194.7 trillion) until 2030 under a continued low economic growth future path. The great economic stagnation that started in the early 1990s could potentially continue until the end of this decade. Moreover, the estimated US$1.45 trillion economic loss is equivalent to the erasure of 35% of GDP produced in 2019 during the Abenomics era