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Thursday, Aug. 23, 2012

EDITORIAL

Japan's growth slowing down

Japan's real gross domestic product in the April-June period increased 0.3 percent (or an annualized 1.4 percent) from the previous quarter, the Cabinet Office's preliminary report said on Aug. 13. Although the Japanese economy has grown for four consecutive quarters, clearly it is slowing down.

The annualized 1.4 percent growth is a sharp drop from the corresponding 5.5 percent growth in the previous quarter. Nominal GDP, said to reflect more faithfully how people and businesses feel about economic conditions than real GDP, dropped 0.1 percent or an annualized 0.6 percent from the previous quarter.

Although the government takes the view that the Japanese economy will continue to achieve modest growth, this is too optimistic. The government should waste no time in taking measures to prevent downward risks.

Public works projects and housing investment in areas hit by the 3/11 disasters helped push up GDP. But consumer spending, which accounts for about 60 percent of Japan's GDP, increased only 0.1 percent from the previous quarter. The effect of government subsidies for purchasing eco-friendly cars, which helped expand consumer spending in the January-March period, is losing steam. The government fund for the subsidies is expected to run out soon.

Equipment investment by enterprises rose 1.5 percent, a favorable turn from minus 1.6 percent in the previous quarter, mainly due to an increase in investment for construction machinery and materials for reconstruction of the disaster-hit areas and for telecommunications equipment related to smartphones.

But orders for machinery — except ships and power generation equipment — which serve as a leading indicator of equipment investment in the private sector, are expected to fall 1.2 percent in the July-September period, following a fall of 4.1 percent in the April-June period.

In sum, business prospects in domestic markets look gloomy, except for the demand from reconstruction in the disaster-hit areas. Japan cannot expect much either from external demand. Net exports (exports minus imports) pulled down GDP 0.1 percent.

Japan's current account balance in the first half of 2012 declined 45 percent from the same period in 2011 to ¥3.036 trillion, the smallest since 1985 when comparable statistics are available, caused by rapid expansion of liquefied natural gas imports for thermal power generation in the near-total absence of nuclear power generation. Exports to China and Europe are lackluster. GDP for the eurozone in the April-June period contracted 0.2 percent from the previous quarter.

The government and political parties must step up efforts not to let the current political confusion caused by Prime Minister Yoshihiko Noda's statement that he will dissolve the Lower House in the near future delay adopting measures that will stimulate the economy



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