Govt must address economic contraction
Written by Meenaa on Tuesday, November 18th, 2008
Govt must address economic contraction
The Yomiuri Shimbun
As the nation’s economy contracted for the second consecutive quarter, the government acknowledged the nation has already entered a recessionary phase.
The government’s prediction of a real 1.3 percent expansion in gross domestic product for this fiscal year now appears unlikely to be achieved. The annual economic growth rate may fall into negative territory for the first time in seven years.
The government must rework its economic and fiscal strategy on the assumption that tax revenues will fall because of stagnant growth.
A preliminary report released Monday by the Cabinet Office showed that annualized real GDP fell 0.4 percent in the July-September period from the previous quarter. This marks the first instance of consecutive quarters of economic contraction since 2001 when the information technology-led bubble collapsed.
Foreign demand, upon which the economy had relied, fell. Domestic demand, including consumption and capital investment, was insufficient to make up for the plunge in foreign demand.
Consumer spending, the pillar of domestic demand, did not increase much over the last quarter despite increases in the sales of large screen TVs and air conditioners thanks to the Beijing Olympics and the hot summer.
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Economic domino effect
Taking into account that compensation of employees, an indicator of workers’ income, declined for the second consecutive quarter, it is only natural that people held their purse strings tightly.
Business sentiment also cooled further. Investment in plants and equipment, which is closely connected with future production, decreased for the third consecutive quarter. The margin of decline also has been expanding.
Exports that sharply dropped in the April-June quarter made only a modest recovery in the July-September period, hampered by the appreciation of the yen and the deterioration of foreign economies.
Japan, the European Union and the United States marked a simultaneous economic contraction in the July-September period. A worldwide recession looks even more apparent. As the chances of a recovery led by foreign demand is not promising, the nation’s economic prospects are quite gloomy.
The impact of turbulent financial markets and slowdowns in foreign economies, the start of which was marked by the failure of Lehman Brothers Holdings Inc. of the United States, likely will become more apparent from now on.
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Any and all means available
At a summit meeting of the Group of 20 industrialized and emerging economies held over the weekend in Washington, world leaders agreed that each nation must tackle the financial crisis using all available means, including monetary policy and fiscal measures to stimulate domestic demand.
The government and the Bank of Japan have a commitment to the international community to employ every possible measure to prevent the economic downturn from being prolonged and becoming even more serious.
The government should first hurry to implement an additional stimulus package worth 27 trillion yen and consider whether it is necessary to take further steps.
The government’s revenues are likely to drop sharply because of decreases in corporate tax revenues among other factors. The government is unlikely to achieve its goal of getting the primary balance into the black by fiscal 2011.
It is time for the government to revise its plans and work toward a realistic goal that matches the actual economic situation and consider ways to boost the economy and secure revenue sources for social security in the future.
(From The Yomiuri Shimbun, Nov. 18, 2008)
