Will Japan's economy grow as steadily as government expects?

Publication Date : 19-02-2014


Japanese Prime Minister Shinzo Abe’s economic policy package, dubbed Abenomics, is being put to the test in terms of whether it will achieve stable and sustainable growth.

The nation’s real-term gross domestic product for the October-December period of last year edged up 0.3 per cent over the previous quarter, according to the Cabinet Office, marking the fourth straight quarterly growth and a growth of 1.0 per cent on an annualised basis.

Personal consumption saw significant expansion as the demand for automobiles and other durable goods surged ahead of a consumption tax increase in April. Plant and equipment investments, which had been recovering at a sluggish pace, improved by an annualised 5.3 per cent.

Akira Amari, state minister for economic and fiscal policy, presented an optimistic view of the economy, saying, “Business is picking up steadily, centering on private-sector demand.”

But the annualised growth rate of 1 per cent fell far short of the 2 per cent to 3 per cent widely predicted among the private sector.

The primary cause for this tepid growth is that public works investments, which had served as an engine for growth, began to level off. Work delays caused by labour shortages at construction sites and sharp rises in material prices have grown more serious.

Exports, which were expected to expand thanks to a weaker yen, managed to achieve only a small margin of increase due to business slowdowns in emerging market economies and other factors.

Another salient point is that exports failed to increase significantly, despite the weaker yen, because many Japanese makers had already shifted production bases overseas in an era of ultra-strong yen exchange rates.

The challenges ahead

Certainly, domestic demand is robust currently, but the biggest challenge ahead is how to overcome the effect of a sales tax hike to 8 per cent slated for April.

In the scenario painted by the government to put the economy on a stable path of growth, the drop in demand expected in the wake of the tax hike will be compensated for by the implementation of a 5.5 trillion yen economic stimulus and the recovery of foreign demand. But the latest GDP figure can be seen as indicating that reality is beginning to fall short of government expectations under the scenario.

The government holds public works projects in high regard, treating them as a trump card to ward off the effects of a sales tax increase. But if they are delayed significantly, they may fail to avert a business slowdown.

Finance Minister Taro Aso has promised to urge government ministries and agencies to accelerate the budget implementation for public works projects, but it remains to be seen what can be done to resolve manpower shortages and other problems.

The central and local governments, along with the construction industry, must join hands to take all possible measures to ensure the smooth progress and completion of public works projects.

The suspension of nuclear power generation has necessitated massive imports of fuels for thermal power generation, which has had a huge adverse effect on the national economy. The value of imports has ballooned due to the yen’s weakening, as trade deficits pushed the GDP down. It is crucial to steadily proceed with the restart of nuclear reactors once their safety has been confirmed.

In addition to government policy, though, efforts by private firms, the main driving force for the national economy, will be indispensable in realising sustainable growth.

Businesses that have seen their performance recovering are urged to return profits to workers in the form of pay raises, thereby boosting consumer purchasing power and driving a virtuous economic circle.


Source Article from http://asianewsnetwork.feedsportal.com/c/33359/f/566601/s/374408f9/sc/7/l/0L0Sasianewsnet0Bnet0Cnews0E572890Bhtml/story01.htm
Will Japan's economy grow as steadily as government expects?
test of japanese – Yahoo News Search Results
test of japanese – Yahoo News Search Results

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