TOKYO — A spike in coronavirus infections in Japan is driving local households to do what they have always done in times of crisis: spend less and save more, stoking fears of a deeper retail recession and grinding deflation.

Fifty-year-old Hiromi Suzuki is doing just that having quit her job at a Tokyo novelty store in December after the pandemic hit sales.

“I try not to spend money,” she said, walking her dog in the city. “Since I don’t go out much, I don’t buy cosmetics or clothes any more.”

Ms. Suzuki’s case exemplifies the trouble Japan faces as COVID state of emergency measures were reinstated in January, hitting spending on services, which makes up one-third of total consumption.

High-frequency data shows consumption began to falter even before January’s state of emergency, catching policymakers off guard and forcing both the government and central bank to cut their assessments on private spending.

“Service spending is slumping sharply,” Bank of Japan (BOJ) Governor Haruhiko Kuroda said last week. “We don’t expect Japan to return to deflation. But we need to keep vigilant on price moves given very high uncertainty over the outlook.”

While demand for some goods is holding up, analysts warn it won’t be strong enough to offset deflationary pressures caused by weak service spending.

“The economy will be in bad shape in the first quarter, which would push prices down,” said Hiroshi Ugai, chief Japan economist at JPMorgan Securities. “Prices will essentially remain weak this year.”

Despite a rebound after initial lockdown measures were lifted in May, consumption later lost momentum, falling more than 4% in November from January’s pre-pandemic levels, according to a BOJ gauge of spending.

That was mostly due to a 10% slump in services spending, which contrasted with an 8% gain in durable goods consumption.

The pain continued in December with consumption falling 11.5% from a year ago, mainly due to a 20% drop in services spending, according to research firm Nowcast and credit card company JCB.

Spending on eat-outs fell 36% and while dining at izakaya bars slumped 47%, both marking the biggest declines since May.

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A government request for restaurants to close early means retailers are now feeling the pinch.

Monteroza, which runs several popular pub chains, said it was closing 61 of its 337 locations in Tokyo.

Meanwhile, beverage giant Suntory Holdings CEO Takeshi Niinami predicts that 30% of all bars and restaurants might fail in the coming months.

The average number of customers per restaurant fell 60% in January from a year ago, data by booking site TableCheck showed, faster than a 23% slide in November and a 40% drop in December.

And Japanese households aren’t spending much on other items either. A BOJ survey showed more than 70% of households don’t plan to change the amount spent to enjoy time at home.

Instead, they are hoarding cash in banks, as they have done through every crisis including the two decades of debilitating deflation that haunted Japan until 2013.

Bank deposits surged 9.3% in December from a year earlier to a record 803 trillion yen ($7.74 trillion).

Households are expected to have saved 45.8 trillion yen, or 8.5% of gross domestic product (GDP), last year, up from 14.5 trillion in 2019, estimates by HSBC showed.

“Unless fears over the pandemic are wiped out, the money piling up in bank accounts won’t be spent,” said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.

The BOJ has downplayed concerns about a return to deflation, arguing that companies aren’t cutting prices across the board as doing so would eat already thin margins.

Nonetheless, core consumer prices fell 1.0% in December from a year earlier, marking the biggest drop in a decade, a sign weak demand is heightening deflationary pressures.

Even fashion group Fast Retailing Co Ltd., seen as resilient due to brisk demand for its casual at-home attire, plans to lower prices of discount brand GU’s spring and summer collections.

While Fast Retailing is wary of cutting prices at its main Uniqlo brand, discounts are planned in coming months to reduce inventory, CFO Takeshi Okazaki said earlier this month.

The hope is that more households will act like Noriko Indo, an 81-year-old pensioner who keeps a tight rein on spending but occasionally indulges in luxuries like tuna sashimi, her favorite food.

“Once the pandemic is over, I’d like to splurge on travel and shop like crazy at a department store,” she said. — Reuters

IN CHINA, it’s already happened. The US should get there in the second half of this year. But Italians and South Africans may have to wait until 2023 — or even longer.

Those are the dates when output in some of the world’s major economies will return to the status quo ante-COVID-19 — the level achieved at the end of 2019, before the new coronavirus struck — according to the latest forecasts from the International Monetary Fund (IMF). The numbers reveal an uneven global recovery after the worst recession since World War II.

The pandemic has killed more than 2.1 million people, shut down businesses and frozen travel. It’s expected to widen inequality between countries and within them, and may push as many as 150 million people into extreme poverty, according to the World Bank.

China, the first major economy to be hit by coronavirus disease 2019 (COVID-19), was also the first to emerge from the slump. Somewhere around the end of June last year, according to official data, gross domestic product (GDP) surged back past its pre-pandemic level. By the end of 2022, according to the IMF, it’ll be more than 15% larger. Some forecasters expect China to overtake the US this decade as the world’s top economy.

The US looks set to bounce back fastest among developed economies, helped by one of the biggest infusions of fiscal cash in world history. Annual GDP should pass the end-2019 figure sometime around the middle of this year, the IMF projects. Japan is another wealthy nation that’s recovering fairly well — and with a shrinking population, its performance may look even better when the fund publishes per-capita numbers in April.

The rollout of multiple vaccines has boosted recovery hopes, and led the IMF to raise its forecast for world GDP this year. Still, even under that scenario, economies will generally be smaller than the IMF had expected in its last pre-COVID-19 forecasts, published a year ago.

And in several countries — developed ones like Spain and the United Kingdom, and emerging ones such as Mexico — GDP at the end of 2022 will likely still be smaller than it was before the pandemic. The new IMF predictions don’t go beyond 2022. But based on the forecast growth rates for the last quarter of that year, some economies — notably Italy and South Africa — may struggle to regain their pre-virus growth rates even in 2023. —  Bloomberg