Can steady economic conditions be maintained? The economy has entered a difficult phase. In this time of harsh financial circumstances, the government should compile effective economic policies.
According to preliminary data, the nation’s real gross domestic product in the July-September quarter increased by 0.1 percent from the previous quarter. The economy grew by an annualized 0.2 percent in the latest quarter. Although the economy has expanded for four consecutive quarters, it slowed significantly from the April-June period.
External demand slumped due to U.S.-China trade friction and other factors, but this was offset by domestic demand, which resulted in a small overall increase.
Exports dropped 0.7 percent. Exports of automobiles and electronic parts were slack. Spending by inbound tourists, which counts as part of exports in GDP data, also slipped due to the deterioration in Japan-South Korea relations and other reasons.
Meanwhile, private consumption, which is a pillar of domestic demand, increased 0.4 percent. This reflected last-minute demand for televisions, personal computers, cosmetics and other products before the consumption tax rate was hiked in October.
Capital spending also jumped by a robust 0.9 percent in the latest quarter. Many companies are investing in rationalization and streamlining to cope with a labor shortage.
However, care must be paid to domestic demand trends from October and beyond.
The diffusion index of October’s economy watcher survey, which indicates activity closely related to local economies, plunged. The drop was especially evident at electronics retail stores, department stores and other stores that had last-minute demand before the consumption tax hike.
Capital investment was not solid either. Machinery orders, a leading indicator, dipped 3.5 percent in the July-September quarter. Clouds are beginning to gather over the performances of companies, especially in the manufacturing industry.
Some analysts have forecast the nation’s gross domestic product will contract in the October-December quarter.
Prime Minister Shinzo Abe has instructed ministers to draw up economic stimulus measures. This package’s central planks will include measures to deal with disasters in areas recently hit by typhoons and to cope with downside risks to the economy. The measures will be compiled by early December, and they will be reflected in both a supplementary budget for fiscal 2019 and the initial budget for fiscal 2020.
The aim of taking steps to prevent the economy from stalling is understandable.
The problem lies in the substance of these measures. Rebuilding disaster-hit areas is vital, but unbridled budget expansion should be avoided. The initial fiscal 2019 budget exceeded ¥100 trillion for the first time, and there are concerns the fiscal 2020 budget will bloat further. The economic measures must be carefully checked to ensure no unnecessary or nonurgent projects have slipped in.
Boosting the productivity of small and midsize companies and supporting exports from the agriculture, forestry and fisheries industries are among measures that have been suggested for underpinning the economy, but the impression that these are a rehash of previous policies is inescapable. The government must closely examine why efforts made so far came up short.
The impacts of the point reward system for consumers who make cashless payments should also be ascertained. Close attention should be paid to any negative effects on retail companies and shops that are not covered by this system.
Easing anxieties about the future is required to encourage more consumer spending. The government must also press ahead with social security system reforms that give people peace of mind.