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Drastic economic structural changes are needed to revitalize the economy, which has been devastated by the novel coronavirus pandemic. This year, the government will be tested on its determination to make them happen.
The magnitude of the impact the virus crisis has had on the economy is reflected in the changes in the nation’s gross domestic product.
■ Precise policy priorities
Real GDP in the 2020 April-June quarter fell nearly 30% on an annualized basis compared with the previous quarter, marking the worst decline in the postwar period. The declaration of a state of emergency stalled most economic activities, including consumer spending and capital investment.
Due to the rebound from the previous quarter, the July-September period saw the highest rate of growth since comparable data became available in 1980, but this is a recovery of only 60% from the decline.
The government expects that the real growth rate for fiscal 2020 will decline by 5.2%. In fiscal 2021, it expects the figure to rise by 4.0%, but it should not be optimistic.
To achieve a full-fledged economic recovery, it is essential to revitalize personal consumption. This accounts for the majority of the nation’s GDP and thus it is difficult to realize a recovery when there is no sign that the spread of infections is coming under control. To begin with, the government must take drastic support measures to prevent the medical system from collapsing.
Measures to stimulate demand, such as the Go To Travel campaign to promote tourism, are needed only after the infection situation becomes likely to be brought under control. It is desirable that the government reconfirms the priorities for its measures and policies.
The importance of a safety net to help the needy remains unchanged.
Currently, the unemployment rate in Japan has been kept low compared to the United States and some European countries. The expansion of employment adjustment subsidies that cover part of leave allowances as well as measures to support cash flow management by government-affiliated and private financial institutions, such as effectively interest-free unsecured loans, are likely proving effective.
While reviewing the effectiveness of these measures, it is desirable for the government to gradually shift its focus to economic stimulus measures.
With an eye to the post-pandemic world, transforming the economic structure becomes important.
Prime Minister Yoshihide Suga has made digitization and decarbonization to reduce greenhouse gas emissions the central pillars of his policies. He has set the focus in the right direction.
■ Review staff allocation
The government was criticized for being slow to digitize administrative systems when it took time to provide cash benefits to the public, however, the private sector has not made much progress in utilizing information technology as intended either.
This is apparently because there are labor shortages in the fields of system design and information processing and these engineers are concentrated in the IT industry.
It is hoped the government and the private sector will restructure their educational and training systems so that personnel who are well-versed in digital-related fields can be allocated to a wide range of sectors.
If workers in the tourism and food and drink sectors, among other industries that are in a quagmire, can be shifted to fields that are growing, it is expected that the disparities believed to have widened due to the virus crisis will be reduced. It is important for managers to have a strong will to invest in people and make innovative changes to their businesses.
As for decarbonization, the prime minister has set a goal of reducing greenhouse gas emissions to net zero by 2050.
To achieve this goal, it is essential to expand the use of renewable energy, promote and popularize electric vehicles and develop technologies for hydrogen and large-capacity storage batteries. There is a heap of issues to be resolved.
In other words, this is a good opportunity to attract corporate investment in this field. The government has decided to set up a ¥2 trillion fund to support decarbonization as part of its additional economic stimulus measures. It is hoped that it will closely examine how the money will be spent and use it effectively.
In the past, Japanese companies improved their environmental technologies to solve pollution problems and took the oil crisis as an opportunity to lead the world in energy-saving technologies. They have worked to minimize costs and overcome a sharp appreciation of the yen. The ability to overcome hardships has already been proven.
It is hoped that the key automaking industry will stand firm. It is desirable that automakers steadily shift their focus mainly to electric vehicles and take the lead in the Japanese economy while paying attention to structural changes for parts manufacturers.
■ Finances in dire straits
In fiscal 2020, the government compiled three supplementary budgets, and expenditures reached about ¥176 trillion. The issuance of new government bonds exceeded ¥110 trillion, creating an abnormal situation. The total amount of the initial general account budget request for fiscal 2021 was also the largest.
Fiscal spending has expanded throughout the world due to the virus crisis, but in Japan, outstanding long-term debt of the central and local governments is more than double the nation’s GDP, the worst level among major countries.
Realizing the government’s goal of achieving a surplus for the primary balances of the central and local governments in fiscal 2025 has become hopeless. Redrawing the road map for fiscal reconstruction is an urgent task for the government.
It is important to promote reform over expenditures. To curb social security costs, which are increasing due to an aging society, it is necessary to continue debating a review of the balance of burdens and benefits. The government should make every effort for elderly people and others to understand the current problem of future generations paying for their benefits.
— The original Japanese article appeared in The Yomiuri Shimbun on Jan. 4, 2021.
