Govt must pull out stops for full-fledged recovery
Though statistics show the nation's economy has finally hit bottom, this does not mean there is no risk that the economy will fall back into recession.
The nation's gross domestic product grew 0.9 percent in the April-June period from the previous quarter, which represents an annualized growth rate of 3.7 percent, marking the first expansion in five quarters.
Exports began increasing thanks to the recovery of overseas economies, while on the domestic front, consumer spending and public investment got a shot in the arm from the government's economic-stimulus measures.
Though the rapid economic downturn, which had progressed at the worst pace since the war, has halted, annualized real GDP stands at 526 trillion yen, down about 40 trillion yen from a year ago, a state of affairs that fails to convince us that the economy is on a recovery track. The government must not stumble in putting the finishing touches on its policies for a full-scale business recovery.
GDP growth in the April-June period was led by overseas demand. During that period, China and many other Asian countries achieved high economic growth. In the United States and Europe, the margin of economic contraction narrowed, while exports of major products, such as electronics parts and automobiles, recovered.
Nevertheless, the prospects for overseas economies remain highly uncertain. Therefore, whether the Japanese economy will be able to get on a stable recovery track hinges on the strength of domestic demand.
Self-sustained demand crucial
The fact that consumer spending, which accounts for about 60 percent of GDP, moved into positive territory, is encouraging news. In particular, consumption of consumer durables, such as electrical appliances and vehicles, increased significantly. The government's pump-priming measures, such as tax breaks and subsidies for the purchase of eco-friendly vehicles, and the introduction of the eco point system aimed at boosting sales of eco-friendly electrical appliances, have proved quite successful.
Public spending, which was boosted in supplementary budgets, showed the largest growth in about 10 years, helping push up GDP.
The series of economic-stimulus measures put forward by the government and ruling parties since last summer was accompanied by fiscal deterioration. However, the measures can be viewed as appropriate policy decisions because they helped prevent the economy from sinking into a double-dip recession.
But once the pump-priming steps' positive effects have run their course, there will be concern that consumer spending and public investment will slow down.
It is desirable that domestic demand move into a self-sustaining recovery mode, which is evidenced by the expansion of consumption resulting from higher employment and higher incomes, supported by policy measures. However, the prospects for such a situation are grim.
Austerity not the answer now
Unemployment continues to rise, and workers' income is on the decline due to cuts in bonus and overtime pay. Under such circumstances, we urge the government to make steady efforts to tackle unemployment and provide financial assistance to those in trouble. The government must not hesitate to take additional measures when necessary.
Capital investment, another pillar of domestic demand along with consumer spending, has long been sluggish. Additional policies aimed at spurring business activities, such as further investment tax credits, are likely to be necessary.
At this stage, the government must not take the short-term economic recovery for granted and switch to belt-tightening policy measures, such as cutting down on public works projects.
We also urge the government--irrespective of the political situation--to avoid delaying the compilation of the fiscal 2010 budget, which would hinder policy implementation.
Whichever party or parties take the reins of government following the general election, a business recovery must continue to be the government's top priority in its economic policies.
(From The Yomiuri Shimbun, Aug. 18, 2009)