The nation's economic growth rate has turned positive, but its momentum has been moderate. Without viewing it optimistically, it is crucial to strengthen the foundation for sustainable growth.
A preliminary report showed the nation's real gross domestic product in the October-December 2018 period rose 0.3 percent from the previous quarter, or at an annualized rate of 1.4 percent. It was the first positive growth in two quarters.
Personal consumption and capital investment, the primary pillars of domestic demand, boosted the growth rate.
Consumption was driven by robust spending such as on dining out, hotels and automobiles. Capital expenditures were buoyed by labor-saving investments as part of measures to counter manpower shortages, and renewal of aging equipment.
The government has stressed, "It is growth supported by an increase in private-sector demand."
However, if the recovery is examined in closer detail, a rebound from a sharp fall in the previous quarter was significant. Consumption and capital investment had slumped in the wake of natural disasters, such as earthquakes and typhoons, in the previous quarter.
There is little momentum for the growth rate to return to a level that will show a full recovery from an annualized 2.6 percent contraction in the previous quarter. The annual GDP growth rate was 0.7 percent in real terms in 2018, but that was a slowdown from 1.9 percent in the previous year.
Worries about economic prospects have grown. Particularly, signs of decline in corporate performance, which had been brisk, are a concern.
The combined net profit of publicly listed companies hit a record high for the first half ended in September 2018, but significantly declined in the October-December period. One after another, companies lowered their earnings forecasts for the year ending in March 2019, raising the prospect that the total profit of listed companies will fall for the first time in three years.
High-tech hopes
The biggest factor is a slowdown in the Chinese economy due to the impact of trade friction and other matters.
Exports to China, especially information technology products, have been on the decline. A blow to Japan's competitive electronic parts industry and other industries cannot be downplayed. Attention needs to be paid to the performance of companies active in trade with China.
A matter of concern is that the momentum for corporate pay hikes will recede at shunto spring wage negotiations amid concerns over uncertainty. A large amount of internal reserves have been accumulated at companies. The companies are urged to increase "investment in human resources" including improvement of employees' treatment, within the possible scope.
The nation's economic structure must be changed to one unlikely to be affected by external demand by realizing a "virtuous circle of the economy," in which pay increases result in boosting consumption and that improves corporate earnings.
Technological advances in digital fields could become pillars of an economy led by domestic demand. The use of artificial intelligence, automated driving and drones, among other technologies, could help enhance the productivity and create new businesses.
It is hoped that money will be poured actively into a digital revolution in a bid to shore up the nation's potential growth rate, which reflects its economic capacity.
The government should strengthen measures to promote corporate investments, such as by developing new legal systems and easing regulations, and thoroughly support technological innovations.
(From The Yomiuri Shimbun, Feb. 16, 2019)
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