TOKYO (Reuters) – Japan’s consumer spending fell in February but at a slower-than-expected pace as households scrambled for protective masks, toilet paper and staple food amid the worsening coronavirus pandemic.
But spending on travel and entertainment slumped, government data showed on Tuesday, a sign households were cutting back on non-essential purchases even before travel bans and social distancing policies took effect in March.
Analysts expect the hit to consumption from the pandemic to deepen significantly in coming months, as Prime Minister Shinzo Abe declares a state of emergency on Tuesday that is likely to paralyse activity in major cities, including Tokyo, for a month.
“This pandemic is an unprecedented type of economic crisis that deals an immediate blow to consumption and jobs,” said Yasuhide Yajima, chief economist at NLI Research Institute.
“We’ll likely see a freefall in consumption in March and beyond of a scale never experienced before. In a crisis like this, Japan has little choice but to embark on helicopter money like other major economies,” he said.
Household spending slid 0.3% in February from a year earlier, marking the fifth straight month of declines but a smaller drop than a median market forecast for a 3.9% decline and the 3.9% fall in January.
Spending on toilet paper jumped 47% in February from a year earlier, while that on domestic package tours slumped 37%.
A separate central bank survey for the March quarter showed Japanese households were the gloomiest on the economic outlook they had been since the collapse of Lehman Brothers in 2008, underscoring the toll the outbreak was taking on the world’s third-largest economy.
Supply chain disruptions, travel bans and social distancing policies triggered by the pandemic have hit Japan’s economy, which is already on the brink of recession, piling pressure on policymakers to take stronger steps to ease the pain.
Abe said on Tuesday the government’s stimulus package to combat the pandemic would be among the world’s biggest and include direct fiscal spending of $358 billion.
It was the first time the premier unveiled the size of direct spending of his package, which he said would total 108 trillion yen – equal to 20% of economic output.
The 39-trillion-yen ($358 billion) in spending would be more than double what Japan spent dealing with the hit to growth from the collapse of Lehman Brothers in 2008.
While the stimulus could ease the immediate damage from the pandemic, lawmakers are already calling for even bigger spending to prevent bankruptcies and job losses.
“Japan’s economy will likely suffer a double-digit contraction in the current quarter. The damage from the outbreak could persist in July-September,” said Takahide Kiuchi, a former Bank of Japan board member.
“The government will probably compile another supplementary budget soon to stimulate the economy with even more spending,” said Kiuchi, now an economist at Nomura Research Institute.
($1 = 109.0400 yen)
(Reporting by Leika Kihara; additional reporting by Hiroko Hamada and Daniel Leussink; Editing by Sam Holmes)