Part The COVID-19 Pandemic

Ⅱand Kansai Economy’s
Adjustment Process

INADA, Yoshihisa; NOMURA, Ryosuke

Having discussed the major issues facing the Asia-Pacific region in Part I, in Part
II we shift the focus to the Kansai region and Japan. We analyze the impact ofCOVID-19 and the adjustment of the economy to the pandemic from various angles. The following is a summary of the contents of each chapter in Part II (Chapters 2 to 4).
Chapter 2 consists of four sections.
In Section 1, we discuss the characteristics of the adjustment of the household
sector to the pandemic. As a state of emergency was declared in April 2020 in
response to the increasing number of COVID-19 infections, consumer spending
declined significantly. We analyze this decline using high frequency data on humanflows and household consumption.
In Section 2, we examine the adjustment of the corporate sector. We focus on
the deterioration of corporate earnings and on employment adjustments. In Kansai, employment in accommodation and food services had been increasing due
to the strong demand by inbound tourism. However, the pandemic caused a major employment adjustment, particularly affecting women many of whom work as
non-regular workers in these industries.
Sections 3 and 4 provide a retrospective overview of economic conditions forfiscal years 2020 to mid-2021, followed by our forecasts for FY 2021 to FY 2023.
Section 3 focuses on Japan, whose recovery has been slower than that of othermajor economies. We present our forecast for the economy, which incorporates
the second official advance GDP estimate for 2021 Q3, as well as our latest assumptions concerning exogenous variables, such as fiscal and monetary policies andvariables related to the global economy. Our real GDP growth forecast for Japanis +2.7% in FY 2021, +2.6% in FY 2022, and +1.7% in FY 2023. A baseline assumption
in our forecasts is that although the possibility of a pandemic caused by the new
Omicron variant is increasing, both the number of deaths and the severity of thecondition of infected people are likely to be curbed considerably due to progressin vaccination. The highlights of our forecast are the expected rapid increase in
consumption due to forced savings by households on the one hand, and the impactof supply constraints on industrial production on the other.

Section 4 focuses on Kansai, where the economic impact of the emergency
states in FY 2020 was greater than in other regions, and the recovery of many
economic indicators was delayed substantially. Our real GDP growth forecast for
Kansai is +2.8% in FY 2021, +2.8% in FY 2022, and +1.8% in FY 2023.
Chapter 3 analyzes the major issues in the Kansai economy, which crystalized in the wake of the pandemic.
Section 1 examines the dynamics of migration movements during the pandemic, focusing on Osaka Prefecture. The disappearance of demand by inbound tourism affected many employees in their 20s, especially those from western Japan,
who had moved to Kansai to work in tourism-related industries.
Section 2 deals with the issues of healthcare service provision. The COVID-19
pandemic revealed the vulnerabilities of Japan’s healthcare system, and it necessitated an analysis of the measures that need to be taken so that the system can
respond more quickly and flexibly in the event of an emergency.
Section 3 provides an overview of the digital transformation (DX) of Japan andKansai, emphasizing that a global perspective and a focus on sustainability are essential in order to boost the effectiveness of DX investments. Ensuring security on
the one hand, and addressing the ethical, legal, and social issues (ESLI) associatedwith the introduction of new technologies on the other, will play important roles inincreasing the sustainability of DX investments.
Chapter 4 provides an overview of the tourism industry in Kansai in FY 2020,and analyzes its strategies and status quo. We conduct a quantitative analysis of theinfluence of the tourism industry on the economies of Japan and Kansai based on
Input-Output tables.
In Section 1, we analyze trends in inbound demand that evaporated due to theCOVID-19 using major statistics. In addition, we review the trends of domestic
tourism, and discuss the impact of the “Go To” travel campaign, a government measure to stimulate demand. As a background to the analysis in the next section, wereview the analytical framework necessary for the success of future inbound tourism strategies, including brand power, innovation, regionalization and the “safety,security, comfort” concept introduced in last year’s Economic Outlook.
In Section 2, we interview the tourism departments of Kansai prefectures
about the situation of inbound tourism and the state of tourism administration.
We find that the tourism promotion strategies differ greatly by prefecture, both interms of scale and strategies. Considering this diversity of tourism strategies, weemphasize the importance of Destination Management /Marketing Organizations

(DMO).
Section 3 builds on the previous section by discussing the activities of DMOs
in the prefectures of Kansai. We conclude that a successful post-pandemic strategy
should be focused on marketing and public relations and based on the culture andhistory of the region.
Section 4 provides a quantitative overview of the tourism industry in Japan
based on the travel and tourism satellite accounts. In addition, we conduct an original analysis of the tourism industry using the extended 2017 Input-Output table.
We clarify the position of the tourism industry in the national economy in termsof the employment and income it generates, and of its impact on other industries.
Finally, we compare the impact of the COVID-19 pandemic on the economies ofKansai prefectures.
In Section 5, we conduct an inter-industry relationship analysis of the pandemic impacts on the tourism industry in 2020. We estimate the decrease in consumption by foreign visitors as well as the decline in domestic travel, including the ripple
effect of the “Go To” travel campaign. Our analysis shows that the campaign mitigated of the decline in consumption by foreign and domestic visitors by about 8%.