Coronavirus: Tokyo Olympic Games delay a blow to Japan’s economy but secondary to Covid-19 fallout

Finbarr Bermingham

From tour operators and event sponsors, to merchandise hawkers and film studios, the postponement of the 2020 Olympic Games in Tokyo has added another wrinkle of anxiety to growing concerns about the outlook for the Japanese and world economies.

But the real concern is still reserved for the coronavirus pandemic which forced the delay, the effect of which would have negated any positive financial boost from the Games had they gone ahead, economists said.

Nonetheless, while much of the economic benefit from the investment in infrastructure for the Olympics has already been banked, a cascading effect from the one-year postponement, which was announced on Tuesday, is certain to ripple through consumption and business confidence.

Companies around the world expecting a bumper payday off the back of the event are hoping their goods can keep and that orders will return when the Olympics eventually take place in 2021.

The postponement is clearly better than a cancellation, and [in that regard] it is a lifesaver for Japan

Yasuhide Yajima

“The impact of this epidemic on tourism is extremely significant. The delay of the Olympic Games is even worse,” said Eiha Jo, founder of Tokyo-based tour company, China Enterprise. “My company served over 600 high-end Chinese tourists last year. They went to Japan to play golf, access health care services and look for properties to invest in. But I’m afraid I will see a big drop in business, compared to last year.”

Analysts in Japan are now pinning their hopes on next year’s rescheduled event to rejuvenate the economy, which many expect to fall into recession in the first quarter after an annualised growth drop of 7.1 per cent in the fourth quarter of 2019. A recession is defined as at least two consecutive quarters of negative growth.

“The postponement is clearly better than a cancellation, and [in that regard] it is a lifesaver for Japan,” said Yasuhide Yajima, chief economist at NLI Research Institute, a unit of Japan's largest life insurer, Nippon Life Insurance. “Still, the decision will blow off the standard scenario for this year that had envisaged some recovery of the Japanese economy around the sporting event.”

Estimates by economists surveyed by the South China Morning Post about the cost of a one-year delay range from 600 billion yen (US$5.4 billion) to 2 trillion yen (US$18 billion), compared to estimates of the cost of a cancellation, which ranged from 4 trillion yen to 8 trillion yen (US$72 billion).

The disparity in these estimates suggests that the true impact – much like most economic forecasting in the age of the coronavirus – will not be known for some time.

But the postponement of what is arguably the world’s flagship sporting event emphasises the severity of the pandemic which is now spreading rapidly through many parts of the West and driving the global economy to the brink of recession, or even depression.

This is the first time in their 124-year history that the Olympics have been moved or delayed during peacetime. The Summer Games have been cancelled three times before – in 1916, 1940, and 1944 – and the Winter edition twice, in 1940 and 1944, all due to war.

“We expect the associated disruptions to result in Japanese gross domestic product contracting by 2 per cent in 2020,” said Stefan Angrick, senior economist in Tokyo for Oxford Economics.

“But considering the situation we’re in, with tourism coming to a virtual standstill and consumption set to decline, the additional impact of postponing the Olympics is fairly modest.”

The news of a delay was announced on the same day that Japan’s composite purchasing managers’ index, a reading of the pulse of the national economy, plunged to its lowest point on record, 35.8. A reading above 50 suggests the economy is growing, while the further below 50, the bigger the economic contraction.

This drop was led by a collapse in the services sector – made up of areas including retail, entertainment and catering, which will be particularly exposed to the postponement of the Games.

The key question is whether small and mid-sized companies, which employ nearly 90 per cent of Japanese workers, can survive until the sporting event is held next year

Takeshi Minami

This also came after Japanese import volumes fell 12 per cent in February, mainly due to a huge decline in shipments from China.

“The key question is whether small and mid-sized companies, which employ nearly 90 per cent of Japanese workers, can survive until the sporting event is held next year,” said Takeshi Minami, chief economist at the Norinchukin Research Institute, a unit of the Norinchukin Bank, the biggest agricultural cooperative in Japan.

The impact will not be restricted to Japanese firms. Hu Xinhua, general manager of Liuhe Craft Product in China’s Zhejiang province, has seen a huge drop off in orders of his Olympic souvenir bamboo hand fans, which were made to coincide with the torch relay.

We are still optimistic, although this year's outbreak has greatly impacted our overseas order

Hu Xinhua

In late-January, a few days before China’s economy effectively shut down, a Japanese client ordered 500,000 bamboo hand fans, but that order was soon reduced.

“Fearing that our production capacity was insufficient, the client reduced the order to 400,000. From late-February to March, our workers rushed to complete the order, but late last week, because of the overseas pandemic, the client again reduced their order to 250,000,” said Hu.

“We are still optimistic, although this year's outbreak has greatly impacted our overseas orders. But Japan's epidemic controls are very good and we are very optimistic that orders for the Olympic Games and Disney will resume.”

Meanwhile, Shanghai-based photo and video production house, Central Studios, has lost a series of commissions as a result of the postponement due to the unfortunate culmination of months of disruption to shoots caused by the coronavirus outbreak in China.

“Around 30 per cent of our pipeline was projects involving Olympic athletes. At first we couldn't lock down a shoot date as the athletes were not allowed out during ‘peak virus’ in China. Now with the Games postponement, the shoots have basically been iced and the revenue disappeared,” said CEO Rodney Evans. “I guess I will need to start training for the 2021 Games instead.”

A number of Chinese online retailers, however, have taken a philosophical approach. A printer and seller of T-shirts on popular Chinese online shopping website Taobao said that since most of his Olympic-themed garments are individually printed for custom orders, the postponement was not a major issue.

“We will just change the print pattern to 2021,” said the seller, who did not want to be named.

Tokyo 2020 Olympic Games key chains. Photo: Reuters

A seller of Olympic-themed badges and pins, trading under the name Big Cat Collections, said that since most of his sales are for “niche hobbyists and collectors, there will not be an impact on our business”.

“In fact, buyers would put even more value on the 2020 pins, now that the Olympics has been historically postponed,” the seller said.

Xi Yushan, honorary president of the Hong Kong Gusu Economy Technology and Culture Association, which has traded between China and Japan for decades, said the delay came at an unfortunate time for Sino-Japanese relations.

“Good relations have just been established between the two countries and their people. The Olympic Games could help to warm relations further, but now communications, trade and tourism have basically been postponed.”

Additional reporting by Yasuhiko Seki in Tokyo

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