It is becoming increasingly difficult to assess the state of the economy. The government must do its utmost to stabilize the global economy through international cooperation and also support the domestic economy.
The government revised down its assessment of the current state of the Japanese economy in the Monthly Economic Report for May. The previous month's wording, that "weakness is seen in exports and industrial production in some sectors," was revised to "weakness in exports and industrial production continues." This is the second downgrade this year, after one in March.
The May monthly report kept the wording that the economy "is recovering at a moderate pace." However, the report stated that exports and industrial production are in a weak tone, partly due to U.S.-China conflicts.
The Cabinet Office's Indexes of Business Conditions for March said the assessment of the coincident index is "worsening" for the first time in six years and two months. Net profits of publicly listed companies have fallen for the first time in three years. It is unavoidable to lower the assessment of the economy.
What is important is not to prolong the economic downturn. On the other hand, there is no prospect of settling trade friction between the United States and China.
The Organization for Economic Cooperation and Development (OECD) has estimated the impact of a 25 percent tariff imposed on all imports by the United States and China against each other. In the worst-case scenario, in which interest rates rise around the world, China's gross domestic product would fall by up to about 1.1 percent and the U.S. GDP would fall by about 0.9 percent.
Support workers, small firms
The government and the Bank of Japan need to carefully analyze the future of the world economy and immediately prepare for a possible further slowdown.
The move by the United States to shun China's telecom equipment giant Huawei Technologies Co. is also worrisome. Tensions between the United States and China could further escalate. Attention should be paid to the matter, including its impact on Japan.
In June, a summit meeting of the Group of 20 major economies (G20), chaired by Japan, will be held in Osaka. The forum should serve as an opportunity to share concerns about the future of the global economy and to explore ways for cooperation.
Leaders of the United States and China are expected to hold talks on the sidelines of the G20 summit. Japan should urge both countries to refrain from protectionist actions and create an environment in which the U.S.-China talks will not break down.
It is desirable to have an economy led by domestic demand, which is less susceptible to foreign factors. According to preliminary GDP data for the January-March quarter, both consumption and capital investment, the pillars of domestic demand, turned negative.
A consumption tax hike is scheduled for October. Although there is limited room for monetary and fiscal policy moves, the government must be very careful not to let the economy stagnate. Additional measures should be considered depending on the situation.
The consumption tax is an important source of stable revenue to support social security. It is hoped that this will help ease public anxiety about the future. It is important for the government to take measures to boost consumer confidence, such as steadily raising the minimum wage, while giving consideration to small and midsize companies.
It is also essential for companies to draw up growth strategies for technological innovation and to actively utilize retained earnings for investment.
(From The Yomiuri Shimbun, May 25, 2019)
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